Businesses and taxpayers can expect in the Brexit transitional period to looks at the subsequent potential VAT and customs issues
In the wake of the Brexit referendum vote, customs and tariff issues are playing part of the trade debate without taking on consideration VAT. Moreover, it has become clear that VAT has the potential to create real difficulties for companies in terms of cash flow, also increasing administrative burden, and a potential loss of competitiveness.
Trading with the United Kingdom
The UK has said they will keep their current VAT system and not deviate too much from it. But in saying this, when companies import from the EU, it is considered an intra-community acquisition. Imports and exports only concern trade with countries outside the EU. We are going to have to change the language and terminology we use for trade with the UK
Right now, when the EU changes the VAT rules, it issues a directive and each country has to implement it by transposing it into national law. VAT rates and registration thresholds may vary slightly from country to country, but the rules are essentially the same. The UK will be able to opt for its own tax strategy after its departure.
Impact of VAT on cash flow
The system, as it currently operates, is very simple. When a business registered for VAT in Ireland purchases a product in the UK, no UK VAT is charged. The Irish business self-accounts for VAT using what is called a reverse charge mechanism. The Irish VAT charge is applied in their next VAT return and a simultaneous credit is taken for this as if a claim had been made.
This will change after Brexit, however. Imports from the UK will incur an Irish VAT charge at the time of importation. This VAT will have to be paid immediately rather than recorded at the time of the next VAT return. When the UK becomes a third country, UK exporters to countries such as Ireland do not charge VAT. Once goods from the UK arrive in Ireland, the Irish VAT rate, typically 23%, is applied and must be paid immediately by the importer along with any customs duties. The Irish importing company can deduct it from its payable VAT on its next VAT return, but this poses cash flow problems. If a business makes VAT returns every two months, it can take up to 10 weeks to recover the VAT already paid on import.
This will not apply to all businesses however, many established traders have a deferred payment account with Revenue and may be able to defer payment of the initial import VAT. But that doesn’t really apply to small businesses that may not have a deferred payment account, because you have to go through a fairly rigorous process to achieve it.
What NOW ?
According to the Uk government, If you’re a UK VAT-registered business that deferred VAT payments between 20 March 2020 and 30 June 2020, you need to:
Any VAT payments you have deferred between 20 March and 30 June should be paid in full on or before 31 March 2021.
Otherwise, If you have cancelled your Direct Debit to HMRC to take advantage of the deferral, you will need to set up a new Direct Debit arrangement in time for the first payment after 30 June.
If you need more help to pay your VAT, you may be eligible to get support with your tax affairs through HMRC’s Time To Pay (TTP) service. This allows you to pay off your debt by instalments over a period of time.
To get more information on the topic, please contact our company specialized in English, Irish, French and Swiss accounting activity and taxation.
Euro Accounting Ltd
France – UK – Irlande – Suisse
Accounting – Taxation – Social – Domiciliation – Company creation
+44(0) 778 986 2405 – +33(0) 7 56 91 93 32