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UK Updates Brexit VAT Guidance For Imported Goods

Tuesday, October 20, 2020

On October 5, 2020, the UK tax authority added considerably to its Brexit guidance for businesses on the value-added tax rules that will apply to goods entering Great Britain from outside the UK.

New updates have been made to a policy paper titled "Changes to VAT treatment of overseas goods sold to customers from 1 January 2021", which was first published in July and includes in-depth guidance for businesses. The new additions to the guidance concern the VAT treatment of transactions before January 1, 2021, who should register for UK VAT, and the new VAT obligations on marketplaces.

UK VAT rule changes from January

Starting from January 1, 2021, the UK Government will introduce a new model for the VAT treatment of goods arriving into Great Britain from outside of the UK. This will ensure that goods from EU and non-EU countries are treated in the same way and that UK businesses are not disadvantaged by competition from VAT-free imports. Other changes will be made to improve how the UK enforces VAT on overseas sellers who sell goods already in the UK at the point of sale.

From January 1, 2021, the UK will begin collecting VAT at the point of importation, rather than the point of sale, for goods valued at not more than GBP135. For imported goods worth not more than GBP135, UK supply VAT, rather than import VAT, will be due on these consignments. The new arrangements will also involve the abolition of Low Value Consignment Relief, which relieves import VAT on consignments of goods valued at GBP15 or less.

Online marketplaces (OMPs), where they are involved in facilitating the sale, will be responsible for collecting and accounting for the VAT. In addition, for sales of goods by overseas sellers, where the goods are already in the UK at the point of sale, HMRC will shift the responsibility for accounting for VAT from the overseas seller to the OMP that facilitates the sale.

For goods sent from overseas and sold directly to UK consumers without OMP involvement, the overseas seller will be required to register and account for the VAT to HMRC.

For goods over GBP135 in value, normal VAT and customs rules will apply, meaning that import VAT will be chargeable and no supply VAT should not be charged at the point of sale.

Business to business rule changes

Business to business sales not exceeding GBP135 in value will also be subject to the new rules. Where the business customer is VAT registered in the UK and provides its valid VAT registration number to the seller, the VAT will be accounted for by the customer by means of a reverse charge. The changes will not apply to consignments of goods containing excise goods or to non-commercial transactions between private individuals. Existing rules will continue to apply for these transactions.

Businesses will be able to use postponed VAT accounting to account for import VAT on their VAT return for goods imported from anywhere in the world. This means the business will be able to declare and recover import VAT on the same VAT return, rather than having to pay it upfront and recover it later, subject to normal VAT recovery rules.