VAT and Brexit

The UK is leaving the European Union at 11pm on 31 January 2020, and most people think that nothing will change until the end of the transition period on 31 December 2020, but that is not the case.

As the UK will no longer be an EU member state the VAT rules for UK businesses automatically switch to those applicable to non-EU member states, unless special arrangements are made.

VAT refunds

Currently UK businesses can reclaim VAT incurred on business expenses incurred in other EU states using the HMRC online portal. The deadline for reclaiming VAT incurred in a calendar year is 30 September following that year.

For expenses incurred 2019 the deadline will remain as 30 September 2020, but the HMRC online portal will close on 31 March 2021 for claims due for VAT incurred in 2020.

VAT MOSS

A similar lengthy transition period will not apply for VAT MOSS reporting, as far as we know. The HMRC portal for reporting and paying VAT due under VAT MOSS will close in May 2020.

VAT MOSS is the simplified method to report VAT due on digital services sold to non-business customers in other EU member states. The current HMRC advice is that the VAT MOSS return for sales made in January 2020 will have to be submitted by 20 April 2020, and the HMRC online VAT MOSS portal will stay open for such returns to be amended before 15 May 2020.

UK businesses currently enjoy an exemption for reporting under VAT MOSS if the total value of all digital services supplied to non-business customers in other EU countries is less than £8,818 for the calendar year, and that threshold was not breached in the previous year. This VAT MOSS turnover threshold will revert to nil at 11pm on 31 January.

Where UK businesses make any sales of digital services to non-business customers in the EU on or after 1 February 2020, that UK business will have to registered for VAT MOSS as a non-union supplier in an EU member state (ie not the UK), or alternatively register for VAT in an EU member state.

The best EU states to pick as a VAT base will be the republic of Ireland or Malta, as both those countries use English as the main language for commerce.

Written by the Tax Advice Network