Avoid the Brexit import VAT trap
- Jan 1, 2021 | Richard Asquith
From 1 January 2021, anyone selling goods to consumers or businesses between the UK and EU facea import VAT, potential tariff charges and customs declarations for the first time. You can choose to ignore these and push the bill and paperwork to your customers. But this will be a nasty surprise for them, as well as result in long delivery delays. This all means no repeat business. Most savvy customers will know in advance if you try this, and will refuse to accept the responsibility. Again, more lost business.
With a little planning now, you can avoid this terrible customer experience, side-step the import VAT payments and ensure your goods still clear through to your UK or EU customers as they did prior to Brexit.
Pick the right INCOTERMS – switch to Delivered Duty Paid
If you take over the customs, VAT obligations and liabilities (see below), you can agree this with your customer via the Incoterms (International Commercial Terms). These are global pre-defined commercial terms for cross-border trade.
The most common one for accepting full responsibility for VAT and customs is Delivered Duty Paid (DDP) where you become the importer of record. In addition to organising full transport to the customer’s site, you take care of all the VAT and customs bother to clear the goods through UK or EU customs. A great customer experience; but you’ll have to manage the paperwork and taxes. This contrasts with Delivered at Place (DAP) where you leave the customer to the import taxes.
How to manage the import VAT headache
From a VAT perspective, whilst you are liable for the UK or EU import VAT, you can avoid any cash payment.
- Declare the import VAT liability on your UK or EU customs declarations when you clear the goods. You then have a choice on how to settle this import VAT bill:
- Pay it in cash directly, or through your agent, to Customs and treat it as lost and a cost of business. You could try reclaim the import through VAT Reclaims application, but the tax authorities may ask what then happended to the goods and why haven't you charged sales VAT on a subsequent sale? So the claim would likely be refused. Since UK VAT is 20% and EU VAT averages 21%, this is not a sensible idea; or
- Obtain a UK or EU VAT (the member state of import) registration to declare the VAT and claim it back.
- If you opt for b., many countries offer a deferred import VAT payment scheme. This entitles you to not pay the VAT at customs; instead just record it in your next VAT return as a book entry only (‘reverse charge’).
- You can indicate on the customs clearance document that you are using the local import VAT scheme. Note, some countries will expect you to apply for the right to do this in advance.
- The UK’s Postponed Accounting VAT scheme started from 1 January 2021. This will help you ensure you do not have to pay UK import VAT.
- The 27 EU member states have variations of this. France has a deferred VAT scheme which was recently relaxed; but you may need a Fiscal Representative if you are from the UK. The Netherlands deferred import VAT scheme is very flexible, as is the Belgian import VAT deferred regime. If you are looking for a favourable import point in Central and Eastern Europe, the Czech deferred import VAT offering is very popular.
- One planning point: If you are importing into the UK or EU, you must be a resident business for certain Customs issues, including the declarations. You may require an import customs representative.