Since Brexit, the rules for Value Added Tax (VAT) in relation to the United Kingdom (UK) have undergone significant changes, directly affecting entrepreneurs selling products in the UK. Here, we discuss not only the changes in VAT rules but also the practical steps you need to take to comply with these new regulations.
British VAT (VAT)
The British government imposes Value Added Tax (VAT). Who pays this British VAT depends on your customer and the Incoterm® used. Under Incoterm® Delivered Duty Paid (DDP), you, as the seller, are responsible for remitting British VAT. This can be done by appointing a British fiscal representative or registering yourself for VAT in the UK. VAT returns must be filed digitally with the British government, for which you need specialized software.
Online deliveries to individuals fall under e-commerce. In the UK, e-commerce is considered an export to a non-EU country. As a Dutch entrepreneur, you apply a 0% rate, meaning you do not charge Dutch VAT. However, if the value of your shipment is less than £135, you are responsible for paying British VAT.
Previously, the delivery of goods to a customer in Great Britain was considered an intra-community delivery and taxed at a zero rate. Now, this is considered an export transaction. However, there is an exception: if the goods are sent to a business in Northern Ireland, it remains an intra-community delivery, and the customer still requires a Northern Irish VAT number to apply the zero rate.
If goods are transported from Great Britain to the Netherlands, they must be imported into the Netherlands. If the customer has an Article 23 code, VAT can be shifted to their VAT return, provided that the customer handles the import.
For Northern Ireland, most of the EU regulations for the delivery of goods remain in effect. However, entrepreneurs must now include the new ‘XI’ VAT number and the EORI number on invoices and customs documents for specific transactions, such as goods located in Northern Ireland at the time of sale.
Before Brexit, the UK applied a threshold of £70,000 for e-commerce sales from the EU to individuals in the UK. However, this threshold no longer applies. E-commerce businesses that did not exceed the threshold and charged Dutch VAT must now be registered for VAT in the UK. The VAT treatment now depends on the shipment’s value:
For shipments valued at £135 or less, the supplier must register for VAT in the UK, and the VAT due must be reported in the UK return. For shipments valued above £135, import VAT is payable by the supplier or the customer, with no possibility of recovery.
It is important to note that tax-free shopping for EU residents in the UK is not possible unless the goods are shipped to the Netherlands, where Dutch VAT is payable.
Reverse Charge Mechanism
Just like in the Netherlands, you can also reverse the import VAT to your VAT return in the UK, subject to conditions. You often need to import goods into the UK and be liable for VAT in the UK. The VAT that you should have paid is included in your VAT return and deducted, so you do not pay British VAT in advance. You must apply for permission for this reversal with HM Revenue & Customs, which is similar to the Dutch article 23 permit.
- EORI Number: Apply for an EORI number. This customs identification number is essential for international business.
- VAT Number: If you handle import declarations yourself in the UK or deliver to British consumers, apply for a VAT number. You also need a British EORI number for UK import declarations.
- AEO License: Consider obtaining an ‘Authorised Economic Operator’ (AEO) status. This simplifies customs procedures, reduces checks, and provides priority in case of inspections. It demonstrates that you are part of a secure logistics chain and is issued by customs.
- Trade Tariff Database: Check the Trade Tariff database of the UK for VAT rates per product.
Receiving Services from the UK
If you receive a service from the UK, you must report the VAT in your VAT return. The service provider in the UK will reverse the VAT to you. You will receive an invoice without a VAT amount, indicating that the VAT has been reversed, referred to as ‘reverse charged.’ If the service provider is not allowed to reverse the VAT, you are obligated to pay British VAT. Depending on the circumstances, you may be able to reclaim this VAT in the UK. The ‘Services in and out of the country’ tool can help determine who is responsible for the VAT and where it should be reported.
It is crucial for entrepreneurs to understand and comply with these new VAT rules and procedures to avoid issues and unnecessary costs when doing business with the UK post-Brexit. Seeking professional advice can be invaluable in this regard.
Need assistance with your British VAT number or British VAT return?
Staxxer can help: we assist entrepreneurs in being 100% VAT compliant throughout Europe, including the UK. We can automate your VAT returns and apply for VAT numbers on your behalf. Whether you are a seasoned international business or just beginning to expand into the UK market, staying VAT compliant is essential. Our team of experts is here to assist you every step of the way.
Schedule a no-obligation consultation with one of our VAT experts for tailored advice. Contact us today to ensure your VAT compliance and peace of mind when conducting business with the UK.