The end of the Brexit transition period means there are changes to VAT rules for businesses trading with the EU. Some of these changes might affect your business, even if you’re not VAT registered. You can also use the government’s Brexit transition website to see what you need to do next.

 
The changes affect the processes and VAT for:

• Receiving goods from the EU (importing).
• Sending goods to the EU (exporting).
• Reclaiming VAT on EU purchases.
• Providing services or digital items across the UK/EU border.

What does VAT have to do with Brexit?

To help you understand what Brexit means for VAT, it’s useful to understand how VAT normally works. Watch our introductory video to learn about VAT, or carry on reading below.

If a business registers for VAT, it charges VAT on any taxable sales that it makes. This usually means adding the cost of the VAT on to the customer’s bill. The customer pays what they owe to the business, including the VAT charge. The business effectively acts as a tax collector, and is responsible for paying the VAT it collects on to HMRC.

It’s a bit more complicated when the seller and the customer are in different countries. This is because of the way that VAT is usually charged on sales as well as imports, which can mean paying two lots of VAT.

To make easier and to encourage trade, EU VAT rules allow EU members to use special rates and handling processes to account for VAT. Since the end of the Brexit transition period the UK is no longer a member of the EU, or part of the EU VAT area.

 
The changes to VAT and excise handling might affect your business, even if you’re not VAT-registered.

Receiving goods from the EU (importing) after Brexit

Some VAT processes and procedures are now different. If your business imports in to the UK, then you need to be aware of:

• The introduction of ‘postponed accounting’ to help businesses deal with import VAT.
• Whose responsibility it is to collect the VAT on low value goods, with a shipment value less than £135.
• Claiming back the VAT you pay on EU purchases.

Postponed accounting for import VAT

Businesses importing goods from the EU will now pay import VAT when their shipment reaches the UK border. This already happens for imports from the rest of the world. Since the end of the Brexit transition period, it’s also the same for imports from the EU.

To help UK businesses manage the change, the UK government are introducing postponed accounting. This changes the way the businesses account for and pay import VAT.

VAT on low value imported goods worth less than £135

The responsibility for collecting VAT on imports with a low value also changed on 1st January 2021. Import tax is no longer due at the border on goods worth less than £135. That doesn’t mean there’s no VAT to pay.

Reclaiming VAT on goods you import from the EU

UK businesses were able to reclaim VAT on EU purchases using their UK VAT return to HMRC. This will come to an end on 31st March 2021, and there aren’t any other arrangements in place.

As it stands, you won’t be able to reclaim VAT you pay to EU sellers after the end of March. Get those claims in!
 

Sending goods to the EU (exporting) after the Brexit transition period

The Brexit deal includes changes to processes and procedures for UK businesses which send goods to the EU.

These include:

• The process for VAT on exports from the UK to the EU.
• Changes to rules on distance selling, which affects UK businesses selling directly to EU consumers (B2C sales).
• The export process, including making declarations.

Providing goods and services across the UK border

There are VAT rules which affect businesses which supply services or make digital sales across the UK border.

This includes:

• UK businesses selling to the EU
• EU businesses selling the UK
• Businesses that aren’t in the UK or the EU, but make digital sales to those places.

Since the end of the Brexit transition period some of VAT rules on services and digital sales are different, including changes to VAT MOSS. This affects where certain types of seller must register for VAT, and the process for charging it.

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