EU warns businesses on post-Brexit VAT

The European Commission (EC) has updated its guidance on the implications for businesses of the UK leaving the EU VAT regime on 31 December 2020. This latest update covers VAT on services.

Currently, the UK is in a transition period following its exit from the EU on 31 January 2020. This is part of the October 2019 Brexit Withdrawal Agreement. At the end of this at year end, in addition to leaving the EU’s VAT union, the UK will leave the Single Market, Customs Union and other trade and regulatory institutions of the EU. It will become like any other non-EU country – a ‘third state’ in EU parlance.

Key changes the EC warns businesses of includes:

• B2B supplies of services by EU customers to UK businesses will fall outside the scope of EU VAT.
• B2C supplies of services to EU consumers by UK companies will also be outside the scope of EU VAT. The major exception is the supply of electronic, telecommunications and broadcast services. UK providers can register with the EU’s non-Union Mini One Stop Shop (MOSS) single filing regime for this. EU suppliers of these services to UK consumers will not be able to use the MOSS return for UK transactions. Instead, they will have to VAT register in the UK. Note, changes to the EU VAT e-commerce package which will include a single EU return for B2C goods likely from 1 July 2021.
• Final MOSS payments from UK businesses for the last quarter of 2020 will be due by 20 January 2021. Any subsequent amendments may be made up to 30 December 2021.
• EU VAT refund claims for services by UK businesses must apply directly to member states for reclaims under the 13^th VAT Directive rules. They will no longer be eligible for the 8^th Directive single claims run by HMRC. This is dependant on the UK striking reciprocity agreements with each state. EU states may also require UK businesses to appoint a fiscal representative.
• The VAT Directive will continue to apply on VAT payers' rights and obligations for five years until the end of 2026 on supplies that took place before 31 December 2020.