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Brexit VAT Complexities

The Withdrawal Agreement Bill has progressed through the UK Parliament legislative process, resulting in the UK leaving the EU as of January 31, 2020 and entering the Transition Period.

During the Transition Period, the UK will continue to follow EU rules, which effectively means that the UK remains within the Single Market and Customs Union until December 31, 2020. Businesses can, therefore, expect no immediate changes to occur to their VAT and customs processes when trading in and with the UK.

However, businesses should consider what the VAT impact is likely to be for trading cross-border and what actions should be taken now in preparation of changes that will become effective after December 31, 2020, since the UK leaving the EU will mean it can no longer benefit from the free movement of goods, services, people and capital within the EU.

If a trade deal has not been agreed by the end of the Transition Period then the UK faces the prospect of leaving without one on December 31, 2020. A customs border between the UK and the EU will be established on January 1, 2021 unless the UK subse­ quently legislates to extend the Transition Period.

The impact for businesses, particularly those trading in goods, is the introduction of customs formalities thereafter. In addition, trade simplifications relating to the importation of goods into the UK followed by an onward supply of the goods to the EU, the temporary movement of own goods between the UK and EU countries, triangulation involving the UK and call-off stocks, will no longer be available to businesses trading in the UK. If a trade deal is not agreed to, then tariffs and quotas will apply to trade between the UK and EU.

Businesses currently registered for VAT in the UK using the so-called VAT Mini One Stop Shop (MOSS) to report and pay VAT on sales of telecommunications, broadcasting and electronic services to customers in the EU need to prepare to apply for a VAT MOSS registration in an EU country.

Now that there is greater certainty about Brexit, the key actions for businesses will be to:

  • monitor developments in trade negotiations and to consider what appropriate post-Transition Period trading models are available. For example, if customs authorizations, such as Inward Processing Relief, would be beneficial it is important to act now to ensure authorizations are approved in time for December 2020.
  • start reviewing supply chains and reconsider the impact of current delivery terms as well as plan for resources and budget for ERP system changes that may be required.

Advantages of Working with Andersen

Andersen teams globally with experienced VAT specialists to provide timely, practical and effective advice from a holistic perspective that is tailored for a U.S. audience.

For further information please contact:

Benno Tamminga

Compliments of Andersen Tax, a Member of the EACCNY