A hard Brexit will occur if the UK leaves the EU without a withdrawal agreement in place which continues to treat the UK as a Member State for VAT purposes.
Unless a withdrawal agreement is put in place or Article 50 of the Treaty on European Union is extended, a hard Brexit will occur at 11pm (GMT) on 29 March 2019.
If there is a hard Brexit, the EU Distance Selling rules will no longer apply to goods being delivered from the EU to the UK. Instead, there will be an export from the EU country of dispatch and an import into the UK. It is therefore necessary to consider how this change is to be implemented in the UK and the impact for EU businesses selling goods on a B2C basis into the UK.
As detailed in our previous news story, HMRC have announced that the way in which VAT is accounted for on imports of parcels into the UK will change. This will apply to parcels that are delivered from both EU and non-EU locations.
In addition, HMRC will abolish the £15 low value consignment relief if there is a hard Brexit which meant that, in most cases, import VAT was not payable on imports with a value below this figure. As such, import VAT will be due on all imports into the UK.
As a result of the changes, there will be two regimes in place which will depend on the value of the goods that are being imported.
Goods below £135
All businesses that are based outside the UK and sell parcels to UK buyers worth £135 or less, must pay import VAT when the goods arrive in the UK. For this purpose, the definition of parcels includes letters, packages, packets and any other article that could be sent by post, even if they are sent by different methods such as via a courier. The £135 refers to the delivered cost excl VAT and import Duty.
There are two ways to pay import VAT: you can either:
- register with HM Revenue and Customs (HMRC) to report and pay the import VAT due to HMRC; or
- pay a parcel operator that offers a service to pay import VAT to HMRC on your behalf.
For goods below £135, there is no option to import the goods and then account for UK VAT on their onward sale. It should also be noted that this scheme applies irrespective of whether the goods are sold on a B2C or B2B basis.
All business that will deliver parcels to the UK where the goods are below £135 will need to consider whether their parcel operator will account for the import VAT due or if they will register for the scheme. It is possible to register for the scheme now in advance of a hard Brexit and we would be pleased to discuss this further.
Good above £135
Where the goods being imported into the UK do not fall within the above scheme, it is necessary to consider the implications of goods being imported into the UK.
HMRC have announced a number of changes to the process of importing goods in the event of a hard Brexit. Some of these changes will apply to all goods being imported into the UK and some will only apply for goods being imported from the EU.
VAT registration threshold
Under EU distance selling rules, there is a threshold of £70,000 per calendar year so if your B2C sales of goods delivered from the EU to the UK are below this amount, you do not need to register for UK VAT. In the event of a hard Brexit, there is no VAT registration threshold so any B2C sale of goods above the £135 threshold will require the business to be registered for VAT in the UK unless it is possible to appoint a UK based agent to account for the VAT on your behalf.
Postponed import VAT accounting
One of the changes following a hard Brexit is that there will no longer be a need to make a payment to HMRC for import VAT when goods are imported into the UK. The UK is introducing postponed VAT accounting for all imports (including those from non-EU countries) where the VAT will be accounted for via the VAT return. This will provide a significant cash flow saving for businesses that import goods into the UK.
This postponement will only apply to import VAT so there will still be a need to pay or defer any customs duty that is due on the goods.
Customs declarations on importing goods into the UK
HMRC have introduced Transitional Simplified Procedures (TSP) for imports of goods into the UK from the EU in the event of a hard Brexit. The intention of these procedures is to reduce the burden of completing customs declarations for businesses who are importing goods from the EU and allow them additional time to implement the new rules.
However, the TSP will only apply to businesses that are established in the UK for VAT purposes so they are not available if you do not meet this condition. If you do have an establishment, you have to register to apply TSP and we would be pleased to discuss the matter further.
If you are not able to apply for TSP, you will need to make customs declarations for goods arriving in the UK and we would recommend that you discuss this further with your logistics provider.
Entry Summary Declarations
HMRC have announced that they are suspending the requirement for Entry Summary Declarations to be submitted for goods being imported from the EU for a period of six months following a hard Brexit. These documents have to be submitted pre-arrival of the goods into the UK and will continue to be required for goods being imported into the UK from non-EU countries.