Brexit affects both U.K. and EU businesses involved in triangular sales, as triangulation simplification no longer applies (because the U.K is no longer part of the EU). As the U.K. is no longer in the EU, a U.K. VAT number cannot be used to allow triangulation when trading with EU countries and EU customers.
Let’s look at an example: A U.K. business has a supplier in an EU country, and a customer in another EU country. The supplier in an EU country is charging the U.K. business VAT, which the U.K. business wants to recover. However, it also wants to make the sale to the EU customer without having to export the goods from the EU supplier to the U.K., and then have to re-ship from the U.K. to the EU customer. This movement of goods would result in U.K. import VAT and duties being required in the U.K. and again in the EU when re-exported. It also creates unnecessary shipping.
In this scenario, a U.K. company would have four options to take advantage of VAT triangulation simplification in the EU:
Option 1
The U.K. business can register in the country where the goods are being shipped from. This means the U.K. company would make domestic purchases and intra-community sales to its customers in the EU. This option depends on the goods being sold on the Ex Works (EXW) Incoterm, as the U.K. business is responsible for picking up the goods from the arrival country.
This option would be advantageous to the U.K. business if it has a single or small number of countries it’s supplying from, as this would limit the number of VAT registrations needed.
A downside would be that the U.K. business could often find itself in a recoverable position, which could negatively affect cash flow.
Option 2
The U.K. business could register in the arrival country where the goods are being shipped to. This means the U.K. business would make an intra-community acquisition and local sale. The local sale would either be with VAT or under the domestic reverse charge rule (this would depend on the EU country). Sales transactions would be on a DAP basis.
An advantage of this option is that the VAT balance in the U.K. business’s returns is either nil, or it is in a payable position so no refund requests would be needed. If there is only one sale location and multiple purchase locations, then the number of VAT registrations required would be limited.
A potential downside to this option would be if there are many sale locations, in which case multiple registrations would be required.
Option 3
The U.K. business could register in a third country where it has no purchases and no sales. It could use this country as a new triangulation location, then make EC acquisitions and EC sales with this country’s VAT number. No Intrastat would be required of the U.K. business as the goods are not going to the country they’re being sold from. Purchase transactions would be on a DAP basis.
An advantage of this option to the U.K. business is that it would be in a nil VAT position. This means no payments need to be made to a tax office, and no Intrastat needs to be filed.
A potential downside is that registrations for triangulation are not always accepted in every EU country, so there is a risk of a rejected application.
Option 4
This option combines options 2 and 3. If the U.K. business picks one EU country it is selling to, it can obtain a VAT number for the transactions taking place within this country then use the VAT number for triangulation transactions.
An advantage to the U.K. business is that the VAT balance in its returns is either nil or it is in a payable position so no refund requests would be needed. Only a single VAT registration would be needed for the whole of the EU, depending on shipping terms.Get help solving your VAT challenges
