Changes to VAT rules from 1 January 2021
The UK continues to levy VAT and the rules relating to UK domestic transactions continue to apply to businesses as they did previously. VAT procedures on the whole remain as those prior to 31 December 2020, but there are some changes to the VAT rules and procedures for transactions between the UK and EU member states.
Importing goods from the EU
The existing rules for imports from non-EU countries now apply to imports from the EU, but with some changes. The government will introduce ‘postponed accounting’ for import VAT on goods brought into the UK with effect from 1 January 2021. This means that UK VAT registered businesses importing goods to the UK will be able to account for import VAT on their VAT return, rather than paying import VAT on or soon after the time that the goods arrive at the UK border. This important relaxation applies to imports from the EU and non-EU countries.
However, customs declarations and the payment of any other duties will still be required. Customs duty (tariffs) will apply to some goods and excise duties will continue to apply to tobacco, alcohol and certain energy products.
Customs and excise duty payments can be deferred to be settled monthly with a duty deferment account. Businesses need to register with HMRC to open a duty deferment account and will need to provide a bank guarantee.
From 1 January 2021, VAT on imported goods with a value of up to £135 is collected at the point of sale not the point of importation. This means that UK supply VAT, rather than import VAT, will be due on these consignments.
Online marketplaces (OMPs) involved in facilitating the sale of imported goods, are responsible for collecting and accounting for the VAT, even when the goods are in the UK at the point of sale.
For goods sent from overseas and sold directly to UK consumers, the overseas seller is required to register and account for the VAT to HMRC. Overseas sellers also remain responsible for accounting for the VAT on goods in the UK when sold directly to UK consumers.
Business-to-business sales not exceeding £135 in value are also be subject to the new rules. However, where the business customer is VAT registered and provides its registration number to the seller, the VAT will be accounted for by the customer by means of a reverse charge.
Exporting goods to the EU
VAT registered UK businesses continue to be able to zero-rate sales of goods to EU businesses. EU member states will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries. This means import VAT and any customs duties (tariffs) are due when the goods arrive in the EU.
Businesses may be able to use the Common Transit Convention (CTC) to complete some customs procedures away from the border and defer import VAT and customs duties until goods reach their final destination. A guarantee may be needed to cover import VAT or customs duties while the goods are being moved, but new procedures are being implemented to minimise the number of businesses that will require a guarantee.
Prior to the end of the transition period businesses that had a low value of sales (up to about £70,000 per annum) to other EU member states could benefit from the distance selling thresholds. Sales below the distance selling thresholds are subject to UK VAT unless the supplier has decided to register for VAT in the country of destination. From 1 January 2021, this facility is no longer available, but all such sales are zero rated exports.
UK VAT registered businesses no longer have to complete an EC Sales List. Instead, UK businesses exporting zero-rated goods to EU businesses need to retain evidence to prove that goods have left the UK. Such evidence is already required for exports to non-EU countries. However, businesses in Northern Ireland will still need to complete EC Sales Lists.
How will Brexit affect the future of holidays and travel?
- Passports - You don’t need to get a new passport if you’re travelling to Europe from 1st January 2021, as long as your current passport has at least six months left on it and is less than 10 years old. If your passport doesn’t meet these requirements, you may not be able to travel.
- Arriving in EU Countries - The officers at the border may ask to see your return ticket, from 1st January 2021, when you arrive in an EU country, Iceland, Liechtenstein, Norway or Switzerland. You might also be asked to prove you have enough money to last your holiday. And, you might need to use a different lane when queuing up on arrival.
- Visa - For holidays in 2021, you’ll only need a visa for a country in the EU, Iceland, Liechtenstein, Norway or Switzerland if you’re planning to stay for more than 90 days. From 2022, the EU is introducing a European Travel Information and Authorisation System (ETIAS). This is a bit like an ESTA that you’d apply for when travelling to the USA. This is not a visa, but you’ll need to register your details before you travel via a quick and easy online form.
- Duration - You can take a holiday of up to 90 days in any 180-day period from 1st January 2021, if you’re travelling to a country in the EU, Iceland, Liechtenstein, Norway or Switzerland. If you want to stay for longer than 90 days, you’ll need to apply for a visa, but the rules vary from country to country.
- Driving - Depending on which country you’re travelling to and how long you’re staying, you might need some extra driving documents, including an international driving permit, to drive in EU countries from 1st January 2021. Permits are available for £5.50 from the Post Office. The rules vary from country to country, so it’s worth checking the FCDO website in good time before your holiday.
- Duty-free - the amount of duty-free goods you can bring back with you from EU and non-EU countries – like alcohol and tobacco – will increase. You’ll now be able to buy, for example, a total of 42 litres of beer and 200 cigarettes without having to pay UK duties. Duty charges won’t be added to these goods when you buy them at a UK airport, either. These new changes will apply to England, Scotland and Wales.
January main tax events
19/01/2021 PAYE & NIC deductions, and CIS return and tax, for month to 5/1/21 (due 22/1 if you pay electronically)
31/01/2021 Deadline for filing 2019/20 self-assessment tax return online and paying your outstanding tax for 2019/20 and first payment on account of 2020/21 tax. (Note that if this liability is no more than £30,000 you can agree with HMRC to spread over 12 months)