Brexit: a new VAT accounting and customs duties regime for imports from 1 January 2021

The UK left the EU on 31 January 2020 and the transition period will end in less than five months time. A new operating environment for international trade will take effect on 1 January 2021. This will affect practically every business in the UK. Even if a business is not directly involved in international trade it may rely on buying goods from UK suppliers that contain components that originate outside of the UK. It is important that all businesses are aware of the changes and it is vital that those who are directly involved take appropriate action now.

One of the consequences of the new operating environment is that it will affect goods entering the UK from anywhere in the world.  The current operating environment that applies to UK VAT registered businesses acquiring goods from outside of the UK can be summarised as follows:

 

  1. Goods entering the UK from outside of the EU are currently subject to the EU customs duties regime, with import VAT recorded on forms C79.
  2. Goods entering the UK from within the EU are not currently subject to customs duties and VAT is accounted for on the VAT Returns of the business acquiring the goods.

 

From 1 January 2021 the UK customs duties regime will take effect and will apply to goods entering the UK from anywhere in the world.  Full UK customs procedures will apply to some goods in January 2021 and there will be a staged introduction of full UK customs procedures to other goods in the following months.

From 1 January 2021 UK VAT registered business will be able to apply postponed VAT accounting to goods entering the UK from anywhere in the world so that VAT is accounted for on VAT Returns. The method will be similar, but not identical, to the way that VAT on goods acquired from suppliers in the EU is currently accounted for.

HMRC has recently published guidance indicating that the VAT due will be accounted for in Box 1 of the VAT Return rather than Box 2 of the VAT Return.  Currently Box 2 specifically refers to VAT due on acquisitions from EU member states and it is not yet clear whether the current design of the VAT Return will be retained after 31 December 2020.  From 1 January 2021 all goods entering the UK will be regarded as imports, including goods entering the UK from the EU.

HMRC intends to introduce an online monthly statement for businesses to download and use when entering the figures for VAT on imported goods on their VAT Returns.  The monthly statement will show the total VAT due on goods the business has imported from every country outside of the UK during the previous month, unless the business submits deferred customs declarations.

As the VAT due on imported goods is calculated on the value including customs duties, businesses that submit deferred customs declarations will need to estimate the VAT due and enter it on the VAT Return for the period the goods were imported. When the deferred customs declaration has been submitted, the next online monthly statement should show the amount of import VAT due. The difference between the estimated VAT due and the actual VAT due should be accounted for on the next VAT Return.

Businesses do not need to be authorised to account for import VAT on their VAT Return and can start doing so in relation to goods imported from 1 January 2021.  A business can account for import VAT if:

 

  • the goods you import are for use in the business
  • the business has included their EORI number, which starts ‘GB’ on their customs declaration
  • the business has included their VAT registration number on their customs declaration, where required.

 

Postponed import VAT accounting will affect the VAT Returns as follows:

Box 1 – Include the VAT due on imported goods at the rate applicable to supplies of the goods in the UK.

Box 4 – Include the VAT reclaimed in this period on imported goods, which will be subject to any partial exemption restrictions applicable to UK supplies.

Box 7 – Include the total value of all imports of goods, excluding VAT.

However, a business will not be able to account for import VAT on their VAT Return if they are authorised to use simplified declarations for imports and they complete their simplified frontier declaration before 1 January 2021.  More information about Simplified declarations can be found here.

An action we recommend is that you seek advice now regarding the new customs duties regime that will apply from 1 January 2021.  Customs duties cannot be recovered as input tax and the new operating environment from 1 January 2021 should influence price negotiations now.  If you do not consider this point now will you be able to pass the additional costs on to customers in 2021? 

Please contact our VAT and Customs Duties Adviser, Naveen Sahney at nsahney@garbutt-elliott.co.uk or our Senior VAT Consultant, Alex Millar at amillar@garbutt-elliott.co.uk