Special rules apply to excise goods, and to exports of any goods to and from Northern Ireland: these have not been covered here and should be addressed separately where relevant.
Special rules also apply to transit and to temporary movements of goods into the EU: again, these have not been covered below.
Duties
From 1 January 2021 the duties position will change for exports of goods by UK businesses both to EU member states and non-EU member states. Exports to any EU member state will, from 1 January 2021, be subject to the Common External Tariff ('CET') as goods arriving from a 'third' country and the relevant duties will need to be paid. Import formalities will need to be complied with, including in some cases obtaining licences. Additionally, businesses will need either to find a customs intermediary or use the National Export System to make customs declarations online.[1] There is currently no deferral of paperwork on exports: the full requirements will apply from 1 January 2021.
For exports to non-EU countries, the position will depend on the UK’s agreement with the relevant country, as the general trading agreements between the EU and non-EU countries will no longer apply to the UK. Businesses will have to move from relying on these to check the position for each specific country to which they export. There is a useful country-by-country summary available, with details of current amounts and codes set out on the government website.
Special provisions will apply to low value consignments of goods worth less than €150 and a simplified customs declaration can be applied.[2]
VAT
The VAT position in relation to goods removed to countries outside the EU will not change as a result of the end of transition.
However, the position of UK exporters to the EU will change significantly, and some will see a significant impact on their business.
Current regime
Under the current rules, no VAT charge results from the 'removal' of most goods from the UK by an exporter where the customer is a VAT registered business in an EU state and the goods are transferred there physically. This is a zero rated transaction, provided paperwork requirements are met. The receiving business will pay acquisition VAT in the receiving state. Since the start of 2020, similar arrangements have applied even to call-off stock, where the customer is known, but title does not transfer until after the goods have been received in the destination state.
However, where the sale is direct to a consumer or to a non-VAT registered business, the UK business must register and pay local VAT in the relevant state, unless either:
(a) its sales are below the distance selling threshold for that state (€35,000 or €100,000, depending on the state); or
(b) it can argue successfully that the goods are not 'delivered by or on behalf of' the selling business,
in both of which cases UK VAT must be charged.
The second exclusion has been one of the drivers of changes to the rules for the new e-commerce rules due to be introduced within the EU in 2021, as some businesses have arranged their contracts to fall within this exclusion.
VAT on exports of goods from 1 January 2021
However, from 1 January 2021 the sale of goods to an EU country will be treated in the same way as exports to a non-EU state. Zero rating in the UK will still be available for goods exported to the EU, although subject to different requirements, provided the relevant conditions are met.
The greater difficulty is in the receiving state. The default position is that local import VAT will need to be paid on entry of the goods, although some member states have provision for this to be entered into the relevant VAT return, which can prevent cashflow disadvantages where the onward supply is taxable.
Contractual provision for allocation of the local VAT (as well as duties) will therefore need to be considered, and in either case it may affect the competitiveness of UK suppliers as compared with suppliers within the EU. They will need either to transfer the liability and compliance obligations to their customers or deal with this themselves, independently or via their freight arrangements. Under Incoterms contracts, VAT will be the responsibility of the importer unless the contract basis is DDP. The VAT has to be calculated on the cost of customs duties and transport to the state in question as well as the actual goods value.
The recoverability of the import VAT will need to be addressed: the ECJ decision in Weindel Logistik Service suggests that the ability to recover import VAT does depend on quasi ownership rights, even if not actual ownership.[3] This will continue to be the law in the EU.
If, for competitive or customer experience reasons, the UK supplier bears the import VAT, it will need to register for local VAT in the country of importation. Subject to the ownership point above, this may allow it to recover the import VAT, while accounting for VAT at the appropriate rate on the supply of goods to the customer as if it were a local business. However, if the supplier does not have a subsidiary or VAT establishment locally, in some countries it will be necessary for the supplier to appoint a fiscal representative, because this is a condition for non-EU entities to register for VAT.
In some cases it may be possible to mitigate the impact of the new costs by fulfilling orders out of EU warehouses or registering in a single EU state. This will depend on the supply chain and business status.
The EU triangulation rules will no longer apply to UK businesses.[4] These have complications and are not always consistently applied. However, they can simplify the VAT position considerably in cases involving three member states provided the relevant conditions are met. For example, currently if a UK business procures goods from a Portuguese supplier to satisfy the needs of a French business customer, and the goods are shipped direct from Portugal to France, the French business customer can reverse charge, with invoices on a VAT free basis between Portugal and UK, and between the UK and France (with the invoice referring to Article 141). However, one key condition is that all three relevant states must be in the EU. Absent special arrangements, once the UK is not a member state triangulation will not be available to a UK business in this position. Instead additional registrations will need to be considered and/or the contractual arrangements revisited. The position will be more complicated still if the goods are shipped via an intervening destination, unless the goods are retained in customs warehouse arrangements.
UK businesses will also not be able to benefit from the new simplified call-off stock arrangements introduced earlier this year pursuant to Article 17a of Directive 2006/112/EC.
The distance selling rules will cease to apply to UK VAT registered businesses making supplies to private individuals (or to non-VAT registered businesses in the EU) as these are an intra-EU measure. This is less likely to have a major impact on suppliers of higher value goods, however. The position of lower value consignments is considered below.
Export of goods to consumers in shipments of less than €150
Frustratingly, as the EU has deferred introduction of the new e-commerce rules until 1 July 2021, UK exporters to EU consumers of goods worth less than €150 will need to deal with two separate regimes – the current regime extending for the first 6 months post-Brexit, and the new regime after that stage. The distance selling regime will cease to apply on 1 January.
For the period from 1 January to 30 June 2021, parcels with a value of €22 or less can continue to be delivered to consumers within the EU VAT-free. However, for goods of higher value, import VAT in the destination country will be due in full, and arrangements will have to be made to pay this, based on local requirements and process (including the question of whether a fiscal representative is required). The distance selling rules will not apply to sales to consumers or other non-VAT registered businesses. However, it may be possible to mitigate the practical effect of this by using a single point of entry for subsequent intra-EU supplies (so that, rather than registering in several EU jurisdictions, a UK business may register in a single jurisdiction and transfer goods under the intra-EU rules from there).
From 1 July 2021, the scheme for small value consignments of €22 or less will end, and a new regime for goods with a value of €150 or less supplied to consumers will be introduced as part of the e-commerce regime. However, these will no longer be outside the scope of VAT and VAT will be due. There is scope for member states to allow use of a scheme which will benefit all third countries, including the UK. This will allow charging of VAT on such goods by the seller at point of sale, with the VAT being paid to a single identified member state under one stop shop arrangements - the Import One Stop Shop or IOSS. This will save registering in multiple countries but not the need to calculate and account for VAT accurately for each jurisdiction. It will however be possible to claim VAT refunds for all EU countries through the IOSS, as well as paying VAT. Explanatory notes about the regime from 1 July onwards were released by the EU Commission in September.[5] However, it is not clear if the UK will be among the third countries which are allowed to benefit from this arrangement without a local intermediary being appointed. There is an alternative option: allowing collection of the import VAT from customers by the customs agent.
There will also be specific rules in relation to electronic interfaces transferring the obligation to charge and account for VAT to the electronic interface (or online marketplace) in specific circumstances. In general businesses using such electronic platforms will be advised of the new rules by the platforms and these are not covered here.
Summary of key points for UK exporters
For a summary of key points for UK exporters, please click here.
How we can help
If you would like further guidance on the tax implications for exports post-Brexit, please contact Hilary Barclay in our Corporate Tax team.
This article was written by Hilary Barclay.
[1]https://www.gov.uk/guidance/export-declarations-and-the-national-export-system-export-procedures
[2]https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2019.181.01.0002.01.ENG&toc=OJ:L:2019:181:TOC
[3] C-612/19. Very broadly, the court held that Directive 2006/112 must be interpreted as precluding the right to deduct VAT to an importer where it does not dispose of the goods in the same way as an owner and the import VAT is not part of the cost of the outputs supplied.
[4] See EU VAT Directive 2006/112/EC, Article 141
[5]https://ec.europa.eu/taxation_customs/sites/taxation/files/vatecommerceexplanatory_notes_30092020.pdf.