Where goods are imported into the UK and a UK Limited company (Ltd) acts as the Importer of Record, Ltd will be able to account for import VAT on its VAT return as opposed to paying cash at the border (and subsequently recovering this). This is a measure specifically implemented by HMRC to ease the burden of Brexit on businesses.
Please note slightly different rules apply to imports into Northern Ireland.
Let us look at an example:
Before Brexit, that is up to 31st December 2020, if Ltd received goods from an EU supplier, this was one continuous process within the EU. The VAT Reverse Charge procedure was applied by the UK business in the UK VAT return, and the supplier applied a VAT rate of 0%. With effect from 1st January, this is now divided into two separate transactions, an export from the EU country and an import into the UK.
There are two options for handling this transaction in the “post Brexit” world. Either:
(a) Ltd acts as the importer of record into the UK, and uses its UK EORI number to process the importation. Ltd then makes an onward sale to its UK customer, charging UK VAT; or,
(b) Ltd takes title to the goods “on the high seas”, or in effect whilst in transit, and the UK customer acts as the importer of record (using their own EORI number).
Which option applies will be dependent on the contractual arrangement between Ltd and its supplier, but the most likely arrangement will be (a).
To note, under option (a), the UK, post-Brexit, will allow importers to defer the accounting for import VAT to the VAT return. This means that import VAT will not be paid at the time goods are customs cleared but rather that the importer will account for VAT through its VAT return (similar to the reverse charge calculation). In order to apply the deferral, Ltd must include its UK EORI number (starting with “GB”) in the import declaration and, most importantly, mark “G” as the method of payment.
If you would like to discuss in more detail, please contact us directly.