Before Brexit, goods supplied within the EU were not considered imports or exports because the United Kingdom was part of the single market, therefore VAT on intra-Community transactions was accounted for using the EU’s Reverse Charge. Since 1 January 2021, supplies and movements of goods between the EU and the United Kingdom are now subject to the VAT rules on imports and exports. If the British customer clears customs on the import of the goods, this is treated as an export for the European supplier, which will not need the UK VAT and EORI number, but simply the EORI and the European VAT number (thus invoicing VAT off-field).
For example, a foreign limited company sells and ships goods from outside the UK worth £1,000 to both Mr Brown, a person who lives in the UK, and Y Ltd, UK VAT Registered company. The foreign company deals with the shipment but not with the import of the goods using the DAP Incoterm. Both Y Ltd and Mr Brown will deal with the UK VAT balance and customs declarations for the import of the goods. The foreign company will not need a VAT number and EORI UK but it is enough to have EORI ITA and Italian VAT number to be able to export the product with a non-VAT invoice.
On the other hand, if the European supplier acted as an importer, then the latter would have to clear customs and then charge UK VAT for the sale, if applicable. The supplier will therefore need a VAT and EORI GB number. Furthermore, it is essential to remark that some Online Market Places (OMP) require the import of the products is borne by the foreign supplier, adopting a specific yield formula (in most cases DDP), providing that the UK-based end customer is relieved of VAT payment, thus prompting the foreign supplier to apply for a VAT and EORI UK position.
In addition to the shipping costs, this also involves the application of UK VAT and the customs clearance of the import of the goods. The importer will have to collect all the documentation needed to prove the moment when the goods have entered the free movement and then to be able to declare them in their VAT returns. We recommend a Postponed VAT accounting system when importing goods into the UK with a UK VAT number.
Through this system, the importer will be able to enter import VAT directly in his periodic VAT return, thus postponing the settlement and fulfilment of VAT otherwise due to any importation of goods. The postponed VAT accounting system is an optional regime that can be activated by the importer directly in the import declaration, without the need for prior authorization. However, the system is mandatory if the importer has opted for the deferred customs declaration or simplified.
It is worth remembering that the Postponed VAT accounting system can now be used for all imports outside the EU as well. This represents a change from how VAT was accounted for before the end of the transition period and it is likely to provide an increase in cash flow for businesses importing from non-EU countries.
A monthly online summary is available as part of the Postponed VAT accounting system, showing when the Postponed VAT accounting has been applied. You can find more on the following link Get your postponed import VAT statement – GOV.UK (www.gov.uk).
Domenico Santomasi
Photo by CHUTTERSNAP on Unsplash
