The Brexit Transition Period comes to an end on 31st December and therefore, whatever arrangements for future trade may be agreed, the treatment of Import VAT will change and there will be cash flow implications from this.
Let us first remind ourselves of the situation today.
Firstly imports from EU countries –
No VAT is payable on importing goods to the UK from EU Member States. Exports from EU countries to the UK are zero rated for VAT on entering the UK and a “Reverse Charge” process is implemented. The transactions are all taken care of in the quarterly VAT declaration.
Secondly imports from everywhere outside the EU, so Switzerland and Norway are included in this group –
Import VAT is payable before the goods are released from the harbour. Then technically a form called a C79 is issued and this can be used to reclaim the VAT already paid when the next quarterly VAT declaration is submitted.
Clearly there are significant cash flow requirements for this non EU group when importing goods in to the UK.
So, what happens next?
From 1 January 2021 all imports from every country must be treated in the same way. The UK Government has decided that it will not collect the Import VAT on all goods entering the UK from 1st January 2021 from any country. There will be a system called “Postponed Accounting” under which the Import VAT and the reclaim will both be handled in the next VAT declaration for the company.
In practical terms what does this mean?
For imports from EU countries, no change in the cash flow but technical changes to the processing of the documentation and the quarterly VAT declaration.
For imports from Non EU countries, from 1 January 2021 no requirement to fund and pay for Import VAT as the goods enter the UK, therefore saving a lot of cash flow.
The EU will continue to follow the current procedure and require payment of Import VAT in the first EU country to which the goods arrive before releasing the goods from the harbour. The new UK arrangements will make the UK the simplest European country into which to import goods from outside the EU.
Please note that all EU importers to the UK must have an EORI (Economic Operator Registration and Identification) number and this must be shown on the supplier invoice.
The rules on the rate of Import duty, if any, still need the UK and EU to agree before 31 December 2020.