Brexit - VAT related matters
Through the flurry of media comment and information releases we look at three specific areas of VAT which will have an impact on our clients – UK VAT Refunds, Qualifying Activities for recovery and Import VAT on parcels sold to the UK.
1.UK VAT refunds – potential Brexit cut-off for Irish and foreign traders?
Currently, UK VAT refund claims can be lodged by EU based foreign traders/businesses through the EVR (Electronic VAT refunds) through their local EU Member State tax administrations. In Ireland, this is done using the Revenue Commissioners ROS portal.
Based on administrative protocol and if the UK will exit the European Union without transitional arrangements being agreed or in place, businesses and the HMRC will not have access to the EVR platform from 31st October 2019.
While the UK Government through the HMRC will likely adopt a foreign trader VAT refund regime, even if such a scheme is to be adopted, there are likely to be long delays in obtaining refunds.
The reality of VAT at the point of entry will arise as the current intra-community free movement of goods cannot continue post-exit from the EU on 31st October 2019.
Given this ambiguity, it’s recommended that business who trade into the UK and do not have UK business establishment/UK VAT registration take necessary actions to avoid unnecessary UK VAT costs.
This will require the quantification of any deductible UK VAT costs incurred by non- UK based or VAT registered Irish and/or foreign trader up to the exit date and the timely lodgement of such VAT refund reclaims through their local EVR portal.
Should a business be incurring UK VAT costs, it would beneficial to seek immediate assistance with quantifying potential UK VAT reclaims and identify what can be processed efficiently through the EVR platform for cashflow reasons.
Mazars understand from HMRC technical briefings that any valid VAT refund reclaims lodged through the EVR platform before the 31st October exit date will have to be processed by the HMRC under existing protocols, but there is no guarantee or facility beyond this date for use.
2.Qualifying Activities – VAT recovery
Client companies engaged in the provision of financial services, in common with other businesses that are engaged in a combination of exempt and taxable activities from a VAT prospective cannot recover all input VAT costs incurred. They are however potentially allowed to recover part of these VAT costs.
Recovery of VAT costs hinges on the relationship to the provision of taxable supplies from a VAT prospective. Normally if a business does not carry out taxable activities such as VAT exempt type services, an entitlement to recovery of VAT costs does not exist however certain relieving provisions arise.
As part of the exercise to attribute and apportion VAT costs between exempt and taxable activities, an opportunity arises to seek full recovery of VAT costs that are directly attributable to supplies of services to persons/ entities established outside of the EU. Accordingly, where VAT exempt activities/ services are provided to persons established outside of Europe, these supplies are regarded as ‘qualifying activities’ that creates an entitlement to VAT costs recovery. Full recovery of VAT costs as incurred exists where these costs are directly attributable to these ‘qualifying activities’ and where VAT costs are attributable to both exempt and qualifying activities, a partial entitlement exists.
Arising from the exit of the UK from the ‘EU VAT Club’ of member states, the supply of similar services as outlined to persons established outside of the EU will extend to the delivery of services to persons established in the UK. This should therefore result in an increased VAT recovery opportunity.
A note of caution however, it is noted that HMRC has recently introduced amending regulation that prevents UK based businesses from benefitting from the exit from the EU to extend the scope of qualifying activities to services currently being provided to clients established in Europe following Brexit. This and other protective measures are the attempt to maintain tax exchequer receipts. EU member states, including Ireland, are likely to take steps also to protect tax exchequer receipts and prevent distortion of competition.
3. Import VAT on parcels you sell to UK buyers
HMRC issued a new VAT notice on 14 February 2019 dealing with the import VAT rules that will apply to sellers based outside the UK who send parcels worth up to Stg£135, if the UK leaves the EU without a deal. Although this will affect many businesses, it is principally relevant to, and crucially important for, businesses in Ireland selling goods on-line to private individuals in the UK.
From 31 October 2019, if you are based outside the UK and sell parcels to UK buyers worth Stg£135 or less, you must pay import VAT (subject to certain exceptions). Parcels include letters, packages, packets and any other article that could be sent by post, even if they are sent by different methods. To pay the import VAT you can either:
- Register for import VAT with HMRC and report and pay the VAT or
- Pay a parcel operator to pay import VAT to HMRC on your behalf.
If you are required to register and pay import VAT but do not do so, then your parcels may be delayed or stopped from entering the UK, the buyer may have to pay additional tax and fees and you will have to pay a Stg£1,000 penalty.
Some of the key questions for your business are:
- the requirement to register for UK import VAT
- how to register for UK import VAT
- finding the correct rate of import VAT
- how to calculate the import VAT
- submitting import VAT reports
- making payment of import VAT
If you have any questions in relation to the above, or if you would like to discuss this topic further, please contact a member of the Mazars VAT team below:
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01 449 6415
Indirect Tax Director
01 512 5525
01 449 4402