The UK Government is stepping up planning and preparations in the event of a no-deal Brexit, as a result of Boris Johnson becoming Prime Minister.
As part of these preparations, HMRC automatically issued over 80,000 businesses with UK Economic Operator Registration and Identification (EORI) numbers. According to HMRC estimates, there are approximately 150,000 UK businesses with VAT numbers that trade with the EU, but only around 70,000 already have, or applied for, an EORI number.
HMRC did contact potentially affected businesses, however the number that applied for an EORI number fell quite below expectations. Therefore, by automatically issuing the remaining 80,000 businesses with EORI numbers, the hope is that those companies will be able to continue to trade with the EU post-Brexit.
What is an EORI number and why are they required for a no-deal Brexit?
An EORI number is issued to businesses wishing to trade with countries outside of the European Union. It is an identification number used in all customs procedures and documentation for imports and exports.
Should a ‘hard Brexit’ occur (i.e. the UK leaves the EU without a deal or enters a transitional arrangement), the UK becomes a non-EU country. Therefore all movements of goods to and from the EU will also be treated as imports or exports. If there is a hard Brexit, all post Brexit trade in goods with the EU will require an EORI number.
It is important to note that the EORI number issued by HMRC will only allow your business to be able to import goods into the UK and export goods from the UK. If you are importing goods into an EU Member State from the UK or another third country, you will also require an EU EORI number to enable you to import those goods into the EU. This is because the UK EORI number will no longer be valid since the UK will cease to be a member of the EU’s Customs Union.
Businesses that only previously bought goods into the UK from the EU may not be familiar with new import procedures that will be placed upon them. Previously, the goods would arrive in the UK as an intra-community supply and the buyer would just need to provide the seller with their UK VAT number and account for acquisition VAT on their UK VAT return.
Now it will be important to understand the implications of importing goods into the UK and the various rules that may apply to those particular goods and whether there will be duty and VAT payable upon import. The UK announced a unilateral temporary tariff for goods coming into the UK, but not all duties are suspended, therefore your goods could become liable to duty and VAT on import.
The duty incurred on import will become a cost to the business, whilst the import VAT is recoverable subject to the general VAT rules. An EORI number is essential in recovering this import VAT, as it will be included on the custom declarations upon importation and link the VAT paid to your UK VAT number. HMRC will then issue you with a C79 certificate which is required when recovering the import VAT on your UK VAT return.
Postponed VAT Accounting
To assist with cashflow, HMRC announced that they will introduce a postponed VAT accounting scheme for imports in the event of a no-deal Brexit. Businesses can postpone payment of VAT upon import, and instead, account for the import VAT via the Return. This is similar to accounting for acquisition VAT on intra-community supplies. Again, to be able to apply this procedure, your EORI number will be required to be included on the customs declarations.
Transitional Simplified Procedures (TSP)
HMRC introduced a simplified import procedure known as Transitional Simplified Procedures. HMRC are recommending that all those new to customs procedures apply to use this scheme. The scheme is open to all importers and will:
- give importers extra time to send in customs documentation; and
- allow importers to import goods from the EU to the UK without having to make full customs declarations at the border or pay import duties straight away.
The idea behind introducing this new procedure is to prevent EU goods being held up at the border in the event of a no-deal Brexit, as well as provide business with a cash flow advantage on the duty payable. HMRC will release further information on how the declaration will be lodged in the future, i.e. will there be any simplifications.
For businesses that previously only dispatched goods from the UK to the EU, again this is going to be a new process and they will need to understand the export procedures and what customs documents are required.
If you are making B2B supplies of goods, you will be able to continue to zero-rate your goods from the UK. However, someone will need to be responsible for the import of those goods into the EU, therefore, you should review your incoterms, in particular if you trade ‘DDP’ and agree this with your customers going forward.
If you are making B2C supplies of goods, the distance selling rules will no longer apply. Therefore, you’ll be able to zero-rate these in the UK, however, there will be more complex considerations when the goods arrive in the EU, such as:
- Does the customer act as importer; or
- Is your business acting as importer; or
- Is your business going to hold stock within the EU.
Whilst the UK introduced unilateral tariffs, goods moving from the UK to EU Member States will still fall under the EU tariffs. Therefore, whoever is responsible for the import of those goods, they may be required to pay duty and VAT upon importation.
If your business is responsible for the importation of those goods, this is where you will require an EU EORI number to enable you get your goods through EU Customs. You will also need to consider the following:
- Customs declarations – specific advice will need to be taken from your logistics provider on what is required and the additional costs that will be incurred.
- Payment of import VAT & Duty – some Member States apply simplifications for import VAT either by deferral or postponement and offer duty deferment accounts.
- VAT registration & fiscal representation – if a UK business imports goods into the EU, it will need to consider if a local VAT registration is required for the onward supply of the goods.
In all cases, it is important you review your supply chains to understand the impact of a ‘no-deal’ Brexit to your business and what VAT implications will occur when trading goods with the EU.
If you are involved in the trade of goods between the UK and other EU Member States, ensure that you take the appropriate steps to enable your business to continue to trade in the event of a ‘no-deal’ Brexit.
For more information on how you can plan for Brexit, please contact one of our VAT experts.