What are the changes occurring with the UK VAT after Brexit?

Jordan Macey

April 21, 2021

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Here's a brief overview of the VAT changes occurring after Brexit:

Exporting goods to the EU:

  • EC Sales List: Previously, UK VAT-registered businesses that met specific conditions and were supplying goods to VAT-registered customers in the EU had to complete an EC Sales List. This is no longer required.
  • Distance selling threshold: Starting from 1 January 2021, UK sellers can no longer take advantage of the distance selling thresholds.

Importing goods from the EU to the UK:

  • Abolition of Low Value Consignment Relief (LVCR): The LVCR, which relieves import VAT on goods valued at £15 or less will no longer apply to goods imported into the UK, or for goods supplied to Northern Ireland from outside the UK and EU.  
  • Postponed VAT accounting: Starting from 1 January 2021, UK VAT registered businesses importing goods from locations worldwide into the UK can use a new system known as postponed VAT accounting.
  • The £135 threshold: Starting 1 January 2021, the point at which VAT is collected on imported goods valued at up to £135 is moved from the point of importation to the point of sale. UK supply VAT—not import VAT—will be charged at the point of sale.

EU VAT Registration Number Validation service:

  • UK businesses will be able to continue to use the EU VAT number validation service to check the validity of EU businesses, but UK VAT registrations will cease to be included.

VAT flat rate scheme:

  • The scheme no longer applies to any sales a seller makes through an online marketplace, where the OMP is liable to account for VAT.

EU VAT refund system:

  • UK businesses can no longer reclaim VAT incurred in other EU countries using the electronic EU VAT refund system.

Further details on the above mentioned changes can be found in our VAT guide for ecommerce businesses.

There are additional VAT changes implemented that do not apply to ecommerce merchants. These include:

  • The VAT treatment of the supply of services to the EU
  • The abolition of the £8,818 annual threshold for cross borders sales of digital services to EU consumers
  • Businesses are no longer able to use the UK’s MOSS scheme to report and pay VAT on sales of digital services to consumers in the EU. The new rules regarding the registration for the VAT MOSS non-union scheme in an EU member state will impact UK and non-UK businesses.

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Can I claim VAT back on my mileage?

You can reclaim VAT on the fuel portion of your mileage expenses if you don't pay a fixed rate under the Flat Rate Scheme.

You can reclaim all the VAT on fuel if you use your vehicle exclusively for business.

If your vehicle is driven for both business and personal use, you may handle VAT in the following ways:

  • Reclaim all the VAT and pay the fuel scale charge for your vehicle
  • Reclaim the VAT on fuel you use for business trips
  • Don't reclaim any VAT. This may be the better option if you use your vehicle for business purposes on rare occasions, such that the fuel scale charge exceeds the VAT you can reclaim.
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Post-Brexit Guide: Exporting From UK to the EU

Ecommerce businesses haven't had the easiest time navigating the post-Brexit changes, to say the least. You've had to stay up-to-date on changes to the UK's customs landscape and VAT, and figure out the steps you need to take to adhere to new measures.

To help you along, we've provided an overview of the customs procedures for exporting goods from the UK to the EU below.

Bear in mind that this is a general guide, and isn't a substitute for specific advice. If you need further information about VAT, feel free to reach out to our tax consultants at Forma.

Obtain an EORI number

Businesses will require a UK EORI number-this starts with either GB or XI-to export goods out of the UK. You'll also have to obtain the EU EORI number of the business you're exporting to in the EU.

If you're transporting goods to your warehouse in the EU, you'll need to obtain an EU EORI number.

If you need to apply for an EORI number, bear in mind that it can take up to one week for the application to be completed.

Getting ready for exporting your goods

There are are few things you'll need to check:

Find out if the post-Brexit changes regarding export VAT apply to your business

Following Brexit, new VAT rules relating to imports, exports, the EU VAT refund system and more have been established.

We've summarised the key updates you need to know if you're exporting from the UK in our VAT guide for ecommerce businesses. These include:

  • EC Sales Lists are no longer required for VAT-registered UK businesses supplying goods to VAT-registered customers in the EU
  • Abolition of the distance selling thresholds
  • The UK remains in the Common Transit Convention (CTC)
  • VAT-registered UK businesses are still able to zero-rate sales of goods to EU businesses, provided that certain conditions are met. Different conditions will apply, depending on whether you're exporting directly (where the goods are exported using your own vehicle, or through a company you employ directly) or indirectly (the collection of your goods is handled by your customer). See HMRC's guidance on VAT for further details.

Check the rules for exporting your goods

Depending on the type of goods you export, there may be rules, restrictions, tax or duty rates that apply, or additional exporting documents that are required.

You will also need to check:

Additional resources:

  • Use HMRC's online service to check the duties and customs procedures for exporting

Check that the business receiving your goods is able to import them

You need to make sure that the business receiving your goods has taken the necessary steps to adhere to the post-Brexit changes. You should check that they've obtained the necessary licences or certificates, or if they are able to complete the import customs declarations (if required).

Know the commodity codes of your goods

Use HMRC's Trade Tariff tool to find the right commodity code for the goods you're importing. If you're engaging a customs agent or transporter, they might be able to help you with classifying your goods.

Completing your export declarations

You'll need to decide how you'll complete your export declarations.

You have the option of either completing the export declarations on your own, or through using customs intermediaries such as freight forwarders, fast parcel operators and customs agents or brokers.

Due to the complexity of the procedures, using an intermediary is the recommended option for businesses. Refer to HMRC's guide for further instructions on steps you need to take.

If you choose to complete export declarations on your own, there are a few important things you need to know:

  • National Export System (NES): NES is a system that enables export declarations to be made electronically. To register, you'll need an EORI number and CHIEF badge role.
  • You have four options for making export declarations. You can make email, web or XML declarations. A CHIEF-compatible software for email and XML declarations. Your fourth option is to use Community Systems Providers, which are commercial entities that provide access to CHIEF for businesses. You'll need your own export software to access the system.

Whether you decide to use an intermediary or to complete the declarations yourself, you'll need to prepare the following information or documents:

  • Commodity code
  • Certificates or licences required
  • Invoice
  • Proof of origin, if you're exporting to a destination where your goods have a reduced or zero rate of duty
  • Departure point and destination
  • Consignee and consignor
  • Nature, amount and packaging of the goods
  • Method of transportation

Additional resources:

Intrastat declarations

HMRC no longer requires Intrastat declarations for exporting goods from Great Britain to the EU. Intrastat declarations are still required if you're exporting from Northern Ireland to the EU (until the end of the NI Protocol).

Additional resources:

Review Incoterms

Depending on the choice of Incoterms used in a contract, the buyer and seller will have different customs duty responsibilities. In light of the post-Brexit changes, you need to review your contracts to check if updates should be made to your contract terms and Incoterms.

Additional resources:

Additional considerations

1. Transportation:

You have two options: you may engage commercial transportation services, or use your own transport.

If you opt for the latter, you need to check for the driver's eligibility to drive overseas (they might need to have certain types of documents with them), and ensure that you have the required licences and permits. You'll also need to be aware of the different rules each destination might impose for the transportation of specific types of goods.

Additional resources:

2. Importer of record

If your company is acting as the importer of record (this will be the case if you're supplying on Delivered Duty Paid (DDP)), there are several requirements you need to adhere to:

  • You'll need to obtain an EU EORI number
  • You'll have to pay customs duty. This can be paid at the time of import, or deferred if you apply for duty deferment in the EU
  • You'll need to appoint an indirect representative to act as declarant on the customs declaration, if you don't have an EU establishment
  • You may apply for simplified procedures in the EU if you have an EU establishment
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Standard vs Flat Rate VAT Scheme Calculator

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How do I calculate flat rate VAT?

The tax you pay is calculated by multiplying your VAT flat rate with your VAT-inclusive turnover. The flat rate you use will depend on the sector your business falls under.

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How do I find my VAT number?

You can locate your VAT number on the VAT registration certificate issued by HMRC. Your VAT number will contain nine digits, with the first two digits indicating the country code (‘GB' for UK businesses).

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How do I find my VAT quarter?

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What are the advantages vs disadvantages of VAT registration?

The advantages of VAT registration are:

  • It enhances the perception of your business: Registering for VAT tends to lend credibility to your business, and makes your company appear larger and more established.
  • You can reclaim VAT: You can reclaim VAT on goods and services you've purchased from other businesses, and this can be advantageous in certain situations.

The drawbacks of VAT registration are:

  • Administrative burden. As a VAT-registered business, there are VAT rules and record keeping requirements you'll need to comply with.
  • It makes your goods or services seem more expensive. Charging VAT can make your goods and services more expensive-and therefore less appealing, particularly if your customers or clients are not VAT-registered business, or are end consumers who aren't able to reclaim VAT.
  • You may be faced with an unexpected VAT bill. If your output VAT is higher than the input VAT, as it nearly always will be, then you need to pay the difference to HMRC. This can create cash flow issues if you're unprepared for an unexpected VAT bill.
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How do I deregister for VAT?

You can cancel your VAT registration online, or by sending form VAT7 via post.

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A Guide to VAT for Ecommerce Businesses

At Forma, we work with startups and small businesses across industries. As such, we're familiar with many of the challenges that ecommerce solopreneurs and small business owners face on a day-to-day basis.

You need to wear multiple hats and juggle numerous tasks-including dealing with VAT. It can be complex, and is one of those things that can make even an experienced entrepreneur break out in a cold sweat.

To help you along, we've put together a resource to help you understand the basics of VAT and stay ahead of post-Brexit changes.

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Switch from Standard VAT to the Flat Rate VAT Calculator

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How do I register for standard rate VAT?

Most businesses can register for VAT online, or appoint an accountant or agent to complete your registration and deal with HMRC.

There are certain instances where you must register by post. You should use the form VAT1 if you want to apply for a ‘registration exception', are joining the Agricultural Flat Rate Scheme or if you're registering the divisions or business units of a body corporate under separate VAT numbers.

Refer to the HMRC website for information on when you need to register by post using the form VAT1A, VAT1B or VAT1C.

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Post-Brexit Guide: Importing from EU to the UK

Ecommerce businesses haven't had the easiest time navigating the post-Brexit changes, to say the least. You've had to stay up-to-date on changes to the UK's customs landscape and VAT, and figure out the steps you need to take to adhere to new measures.

To help you along, we've provided an overview of the customs procedures for importing goods from the EU to the UK below.

Bear in mind that this is a general guide, and isn't a substitute for specific advice. If you need further information about VAT, feel free to reach out to our tax consultants at Forma.

Obtain an EORI number

Businesses will now require an EORI number-or Economic Operators Registration and Identification number-to import goods into the UK.

You'll need to check the type of EORI number you need. Depending on the location you import from or export to, you may require more than one EORI number.

If you're based in the UK, you should obtain an EORI number that begins with GB. If you already have an EORI number that doesn't with GB, you'll have to apply for a GB EORI number. If you're moving goods to or from Northern Ireland, you'll need to obtain an EORI number that begins with XI. Do note that you can't apply for an XI EORI number, unless you already have a GB EORI number.

If you need to apply for an EORI number, bear in mind that it can take up to one week for the application to be completed.

Find out if the post-Brexit changes regarding import VAT apply to your business

Following Brexit, new VAT rules relating to imports, exports, the EU VAT refund system and more have been established.

We've summarised the key changes you need to know if you're importing into the UK in our VAT guide for ecommerce businesses. These include:

  • Abolition of the Low Value Consignment Relief (LVCR)
  • Duty deferment account
  • Introduction of the £135 threshold
  • Introduction of the postponed VAT accounting.

Do note that the postponed VAT accounting is mandatory if you choose to defer the submission of customs declarations. We'll run through the details of completing your import declarations below.

Check that the business sending you goods is able to export to the UK

You need to ensure that the business sending you goods has all the necessary steps required to export to the UK. It includes:

  • Making an export declaration in their country
  • Obtaining the required EU licences or certificates
  • Having an EU EORI number
  • Having a statement of origin
  • Having a commercial invoice
  • Having a packing list

Additional resources:

Preferential tariffs and the rules of origin

The UK and EU have agreed on a free trade agreement, which came into force on 1 January 2021.

For businesses that export and import between the UK and EU, this has an important implication: the agreement provides businesses with customs duty and quota-free access to the respective markets, provided that the rules of origin are met.

To find out if you can claim a preferential rate of duty, you need to check if your goods meet the rules of origin. If the goods meet the rules, you'll need to obtain a proof of origin. The type of proof required will vary depending on the type of goods you have, where it is imported from or where the goods will be exported to.

You should also check if you're able to pay a lower rate of duty, or delay paying duty.

Additional resources:

Applying for a duty deferment account

A duty deferment account lets you delay paying customs charges such as customs duties, excise duties and import VAT (if you're not using the postponed VAT accounting system). You'll be able to make monthly payment through Direct Debit, rather than paying for individual consignments immediately upon import.

If you're importing goods on a regular basis, making monthly payments will likely be a more convenient option. There are also instances where applying for a duty deferment account is mandatory, such as when you're using the simplified frontier declaration system

Do note that the new rules for duty deferment will apply in Great Britain. While obtaining a financial guarantee was a requirement previously, businesses now have the option of applying for a guarantee waiver for their account.

Additional resources:

Import licences and certificates

Depending on the type of goods you import, you may need to obtain an import licence or certificate.

Commodity codes

Use HMRC's Trade Tariff tool to find the right commodity code for the goods you're importing.

Work out the value of your goods

When you complete your import declaration, you're required to indicate the value of your goods. This is required for the calculation of the duty and VAT you need to pay, as well as for trade statistics.

Read HMRC's guidance to learn about the different methods you can use to work out the value of your goods.

Completing your import declarations

You'll need to decide how you'll complete your import declarations.

You have the option of either completing the import declarations on your own, or through using customs intermediaries such as freight forwarders, fast parcel operators and customs agents or brokers.

Due to the complexity of the procedures, using an intermediary is the recommended option for businesses. This HMRC guide provides further instructions on steps you need to take.

If you choose to complete import declarations on your own, there are a few important things you need to know:

  • Deferring import declarations until 30 June 2021: From January 2021 till 30 June 2021, customs declarations may be deferred for imported goods from the EU. Customs payments may also be deferred until the declaration is submitted. Do note that there are exceptions (such as if you're importing controlled goods) and qualifying conditions (for instance, you'll need to be authorised by HMRC to use the simplified declaration procedure). Find out more on the HMRC guide.
  • Using the simplified declaration procedure (SDP): Depending on factors like the type of goods you're importing, you may be able use the simplified declaration procedure. See the HMRC guide for further guidance on what you need to, including instructions on how to check if you're able to use the SDP.
  • Registering for the CHIEF system: CHIEF refers to the government's Customs Handling of Import and Export Freight service. You'll need to be registered for the CHIEF system, and use software that's compatible with CHIEF. While the CHIEF service is scheduled to be replaced by the Customs Declaration Service in the future, it remains in use for the time being.

Additional resources:

Review Incoterms

Depending on the choice of Incoterms used in a contract, the buyer and seller will have different customs duty responsibilities. In light of the post-Brexit changes, you need to review your contracts to check if updates should be made to your contract terms and Incoterms.

Additional resources:

Intrastat declarations

If you're a VAT-registered business, you may need to submit monthly Intrastat returns on ‘arrivals' (goods imported from VAT-registered suppliers in EU member states) if the value of goods exceed the stipulated annual thresholds:

  • Your business receives more than £1.5 million worth of goods from the EU in any calendar year
  • Your business moves more than £250,000 worth of goods to the EU from Northern Ireland in any calendar year

If the conditions above apply, submitting Intrastat declaration is required:

  • For the rest of 2021, if you're importing into Great Britain from the EU
  • Until the end of the NI Protocol, if you're importing into Northern Ireland from the EU

Additional resources:

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VAT Calculator

Working out the VAT

With our calculator, you can work out your VAT in just a few quick clicks.

If the price doesn't include VAT:

  • Select the ‚ÄòAdd VAT' option
  • Select the rate of VAT on the slider
  • You'll obtain the gross price (inclusive of VAT) and the VAT element of the bill.

If the price includes VAT:

  • Select the ‚ÄòExclude VAT' option
  • Select the rate of VAT on the slider
  • You'll obtain the pre-VAT price (exclusive of VAT) and the VAT element of the bill.

VAT basics: What you need to know

VAT, or Value Added Tax is a consumption tax that is applied to most goods and services. While the standard rate (20%) applies in most cases, there are items-such as children's car seats and sanitary products-that are charged at the reduced rate of 5%. Using the slider on our calculator, you'll be able to calculate the VAT and gross or net prices for different VAT rates. If you're unsure about the correct rate you should apply, refer to HMRC's resource on VAT rates.

Resources:

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What is VAT: registration, thresholds and schemes

VAT is simpler than it is usually made out to be, but you need to approach it step by step and crunch the numbers involved to find your best way to deal with it.

This is because, in addition to the normal way of paying VAT (known as the Standard Rate Scheme), HMRC also offers the Flat Rate Scheme, the Cash Accounting Scheme and the Annual Accounting Scheme for small businesses with turnover under a certain amount.

Each of these change your tax liability and how you pay in different ways. We shall deal with them at the end of the article.

The Standard Rate Scheme is the essence of VAT however, and it neither overly complex nor particularly difficult to get your head around.

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How do I claim back VAT?

You can reclaim VAT by submitting a VAT return.

You need to have valid VAT invoices, keep records as proof for your claim and show how you calculated the business proportion of a purchase.

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How to Start an Ecommerce Business

  • Types of Ecommerce Business Models
  • How to/ if you need to register your business
  • Accounting software requirements
  • Understanding VAT
  • Brexit Import checklist
  • Brexit Export checklist
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What are VAT Returns?

A completed VAT Return will either show how much is owed to HMRC or whether you're due a refund.

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The flat rate VAT scheme explained

At first glance, VAT can seem like one more aspect of your business that adds to your administrative tedium. Yet, as a small business owner, you want to run your business in the most tax efficient way possible-and VAT is a common area where business owners are losing out.

Even if you've hired an accountant, you need to have a good grasp of the essentials.

Below, we'll dive into an aspect of VAT that business owners often raise questions about the flat rate VAT scheme. We'll run through the basics, touch on recent regulatory changes and share our answers to frequently asked questions about the scheme.

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Ultimate Guide to Starting An Ecommerce Business

There's no denying that starting an ecommerce business is hard work. There are many decisions to be made, and multiple aspects you need to plan and strategize-from choosing a business model and products, to registering your company, creating a well-thought-out exchange and returns policy and more.

To help, we've put together a comprehensive guide to getting started. We'll run through the essentials, starting with the main types of ecommerce business models you should consider.

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Best Ecommerce Accounting Software (and How to Choose)

As an ecommerce merchant, managing your business finances can quickly get out of hand if you don't have a proper system in place, and the right tools to support it.

Perhaps you've experienced a growth spurt, and using spreadsheets to manage your accounts doesn't cut it anymore. Or you realise that you're spending increasing amounts of time each week manually tracking your orders, inventory and accounts.

These are signs that it's time to make the switch to an accounting software. If you're wondering, ‘how do I choose?', look no further.

In our guide, we dive into:

  • Key features you should look for
  • Question to ask (when choosing an ecommerce accounting solution)
  • Best ecommerce accounting software
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