Whilst the United Kingdom officially left the European Union (EU) on 31 January 2020, this prompted the start of an 11-month transitional period during which time the UK remains part of the Single Market, the EU Customs Union and the VAT Territory. With the transitional period due to end on 31 December 2020, it is important to prepare for the changes that will take place from 1 January 2021.

 VAT changes

The UK will leave the EU VAT Territory on 31 December 2020. After this date, Great Britain (England, Wales and Scotland) will not be subject to EU VAT legislation. Northern Ireland will remain subject to EU VAT legislation in respect of transactions involving goods, but not for services. Businesses in Great Britain should therefore be aware of numerous changes applying from 1 January 2021.

Goods purchased from overseas

From 1 January 2021, acquisitions (purchases of goods from EU member states) will be treated as imports. This means that VAT on acquisitions will no longer be declared in Box 2 of the VAT return. A new system ‘Postponed Accounting’ will be introduced and will apply to imports received from all over the world, with some exceptions such as low-value consignments. 

The system is intended to mitigate the cashflow disadvantage posed by paying import VAT upfront and waiting to reclaim it in a later VAT return. Under the new system, import VAT can be deferred and declared to HMRC in Box 1 of the VAT return for the period of importation. The VAT can be reclaimed in the same return, in Box 4, subject to the normal rules for reclaiming input tax. 

Low-value consignments, where the VAT-exclusive value does not exceed £135, will no longer be subject to import VAT. Instead, UK VAT will be due on the supply at the point of sale. If the goods are sold via an online marketplace (OMP), the OMP will be responsible for charging VAT to the customer. If the goods are not sold via an OMP, the overseas seller will be required to register and charge VAT in the UK. One exception to this rule is where the customer is VAT-registered; in this case the customer can declare the VAT due on the seller’s behalf, by way of a reverse charge. 

From 1 July 2021, it is expected that new simplified procedures for low value consignments will come into effect within the EU for consignments with a total value of up no more than €150. This new procedure will be known as the import One Stop Shop (IOSS) scheme and will cover all supplies of goods and services made within the EU. We will be in touch again nearer to the time to advise further on the most appropriate steps to undertake to mitigate any VAT issues arising from IOSS. 

The information is for general information only and is not intended to be comprehensive financial, tax or business advice. You should seek appropriate independent financial and/or tax advice before following any course of action. 

The information is correct at the time of publication. Shaw Gibbs cannot be held responsible or liable for any changes to finance and/or tax rates or regulation.