VAT Associate Simon Knivett outlines why VAT, import tax and EORI numbers should be at the top of every business’ VAT checklist when preparing for Brexit.
While the Brexit negotiations and rhetoric rumble on, it’s crucial to recognise that even if a ‘deal’ – a Free Trade Agreement (FTA) – is negotiated, the outcome remains the same: the VAT treatment on cross-border supplies from the UK to EU Member States will change.
Until the end of the Brexit transition period on December 31 2020, a cross-border supply of goods from the UK to a VAT-registered entity in an EU Member State is a intra-Community Supply of goods for VAT purposes. The VAT liability shifts from the supplier, with the customer accounting for the acquisition tax. This is assuming the conditions are met.
VAT Treatment of Goods and Import Tax
From January 1 2021, these supplies become exports from the UK. They become imports in the Member State where the goods are subject to customs clearance. The Importer of Record (IOR) is responsible for providing the documentation for customs clearance and paying import tax.
When supplying goods to an EU Member State from a non-EU country, the IOR requires an EU EORI number. Following the transition period, several Member States will no longer accept UK EORI numbers. Therefore, Member States require UK businesses acting as the IOR to obtain an EU EORI number to clear its goods through customs of an EU Member State.
Dormant EORI numbers
UK business can apply for a dormant/inactive EU EORI number in preparation for 1st January 2021. Belgium and the Netherlands are included in the Member States allowing dormant EORI applications. For example, it is not currently a requirement to request a dormant EORI number when making taxable supplies in the Netherlands. However, it is unknown whether the conditions will change closer to the end of the transition period.
Member States, such as France, communicated it will not be possible to obtain a French EORI number until 2021. All UK and non-EU entities using a UK EORI number for EU Member States imports need to consider requesting a dormant/inactive EU EORI number.
Businesses still require a UK EORI number after January 1 2021. This is in order for the goods to leave the UK Customs territory when exporting to Member States. Additionally, businesses require a UK EORI number for importations of goods into the UK Customs territory, such as those dispatched from the EU.
An EU EORI number will be necessary to clear the goods through Customs in the EU Member States. Effectively, UK businesses exporting goods from the UK to the EU will require two EORI numbers: a UK one starting with ‘GB’ and an EU Member State issued one beginning with the country code of the issuer.
The European Commission and HMRC require non-EU entities request an EU EORI number from the Customs authority. This of the first EU Member State where the business submits first VAT declaration. The rule includes the UK as of January 1 2021.
We would expect some Member States will be more flexible in issuing EU EORI numbers; regardless of whether the applying entity is carrying out taxable supplies in that Member State.
There’s Still Time to Prepare
Businesses need to prepare for the end of the transition period and have the appropriate EORI numbers in place. This will mitigate the risk of delayed goods at Customs. As a trusted European VAT advisor, we strongly recommend businesses initiate preparations as soon as possible. Brexit will heavily affect the tax authorities’ response times closer to January 2021. This includes standard timescales for VAT registrations and fiscal representation.
Contact our VAT experts for further information regarding VAT, Import Tax and EORI numbers when importing your goods into the EU after the end of the transition period. We will review EORI numbers and deferring the payment of VAT and Import Tax from the time of Customs clearance to a later date. This will optimise your business’ cashflow.