By Michael Ashdown, Head of VAT and Customs, Harwood Hutton
The travails of UK businesses and their dealings in Europe continue to fill the pages of our national media, writes our head of VAT and Customs Michael Ashdown. Politics aside, it is clear not everyone will be experiencing the smoothest of post-Brexit transitions.
Larger enterprises are, by and large, coming to terms with the new rules. But for some businesses who deal infrequently with Europe or who had not quite appreciated the nature of the links in their supply chain, the new Trade and Cooperation Agreement between the UK and the EU may well hold some unwelcome surprises.
Here, principally for those smaller businesses, I am setting out the nine most important issues to consider on the indirect tax side of things and some actions to follow. Of course, for anyone requiring an actual gameplan, Harwood Hutton is at your service.
1. Incoterms: DDP
Now is a good time to review the terms under which you trade, especially the Incoterms you use. Many businesses sell on a Delivered Duty Paid (DDP) basis, which is often better for customers as it means you are responsible for paying all the import charges and making the required customs declarations. On the downside, you will be making a supply of goods for VAT purposes in the customer’s country, so you may need to register for VAT in that country. It may be worth looking to see if you can amend your contracts so you operate under a different Incoterm which would not impose an additional VAT obligation.
2. Fiscal Representative
Going forward, certain EU countries may require a UK business to appoint a Fiscal Representative as a condition of being VAT-registered. You will need to keep a close eye on the position of each EU country where you operate. A fiscal representative is jointly and severally liable for the payment of the VAT due to the tax authorities, so to reflect the risk, they often charge high fees. We can advise you on which EU countries require such a representative and help you find a suitable representative.
3. EORI Number
Your business has possibly already obtained its UK EORI number to allow you to import goods into the UK, but if you are responsible for importing goods into the EU, you will also need to obtain an EU EORI number. Previously, your UK EORI number could be used anywhere in the EU, but that is no longer possible.
4. Origin for Preferential Rates
The news about the new UK/EU agreement could have led you to think there will be no duty at all on goods moving between the UK and the EU. The agreement sets out a Preferential Rate of duty for such goods but it applies only if the goods concerned are of UK or EU origin. The origin of goods for Customs purposes is a complex area. When you import goods from the EU or export goods from the UK to the EU, you will need to confirm the goods concerned are of UK or EU origin as appropriate. If that is not possible or the declaration is incorrect, duty will be payable. Penalties could also be imposed for making incorrect declarations. We can help you with determining the origin of the goods.
You may have thought you no longer have to complete Intrastat Declarations for goods moving between the UK and the EU. Unfortunately, as full import declaration will not be required for all imported goods until later in 2021, Arrival Intrastat Returns still need to be completed for 2021 if you have exceeded the relevant threshold. The Dispatch Intrastat Return no longer needs to be submitted for goods moved in 2021 nor do EC Sales List need to be completed for supplies made from 2021 onward.
6. Postponed VAT Accounting (PVA)
Going forward from 2021 it will be possible to account for the import VAT due on all imported goods in your VAT return instead of having to pay it at the border and recovering it at a later date. This has an obvious cash flow benefit. You do not need to apply to use PVA but you do need to inform your customs agent in writing that you wish to use this, as it needs to be declared on the relevant Customs entry.
7. Reduce Deferment account
Postponed VAT Accounting and the preferential rates of duty for goods from the EU will mean the value of charges that need to be deferred using a deferment account will now be lower than before. It would make sense to review the level of the deferment account with HMRC that is needed and, if necessary, look to lower it. Reducing the level of charges that could be deferred will mean a lower bank guarantee will be needed and reduced charges for the facility.
8. Authorised Economic Operator (AEO) status
AEO is a recognition granted by HMRC that a UK business has appropriate controls in place over its customs processes and such a business can therefore expect fewer security-related customs control as well as priority treatment. The Trade and Cooperation Agreement with the EU means the EU will recognise Safety and Security AEO Status that has been granted by the UK, such that a UK business should be able to obtain benefits of its AEO status throughout the EU. It takes at least three months for HMRC to approve an AEO application and the application requires a detailed description of the business processes in place in relation to the movement of goods. We can help with the application for and completion of AEO status by providing an independent review of the processes in place.
9. Northern Ireland Protocol
Northern Ireland will be treated as if it were still part of the EU Single Market in relation to the movement of goods. If you are involved in selling goods in Northern Ireland and are not established there, you will need to separately inform HMRC of this fact. HMRC will then issue an XI VAT Registration number to the business to identify it for the trade of goods within the EU. Goods moved from the EU to Northern Ireland will be treated as an Intra-EU supply but there could be indirect tax implications with the movement of goods between Great Britain and Northern Ireland. If you import goods into Northern Ireland, you will also need a specific EORI number for those imports.
Contact Michael Ashdown
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