VAT will not have to be paid at the border in the event of no-deal Brexit

Out-Law News | 23 Aug 2018 | 3:08 pm | 3 min. read

If the UK leaves the EU without an agreement, businesses importing goods from the EU or from outside the EU will not have to pay import VAT as soon as the goods arrive in the UK, but will be able to account for the VAT later on their VAT return, the government has announced.

"This is a welcome announcement as importers were very concerned about the cashflow implications of having to pay VAT upfront when we leave the EU. It makes sense that the government will extend the treatment to imports from outside the EU as it would be illogical after Brexit to treat trade with non-EU countries less favourably," said Catherine Robins, a tax expert at Pinsent Masons, the law firm behind Out-law.com.

The announcement was contained in guidance on VAT, one of a series of guidance documents published by the government giving guidance on how to prepare for Brexit if there is no deal with the EU.  

At present there is no need to pay import VAT when goods from the EU arrive in the UK. Instead the import VAT gets offset against output VAT in the importer's next VAT return meaning no cash outflow to HMRC if the importer is using the goods to make taxable supplies.

Proposals in the Taxation (Cross-Border Trade) Bill would have meant that UK retailers and manufacturers would have to pay VAT upfront on post Brexit imports of goods from EU member states. This is the same treatment as currently exists for imports from countries outside the EU. The VAT can be reclaimed if the importer is going to be using the goods to make VATable supplies but there is a cashflow disadvantage as the VAT will only be recovered or offset in the importer's next VAT return. Returns will usually be made quarterly, although businesses with large VAT liabilities are obliged to make monthly payments on account.

Arrangements can currently be made for imports from outside the EU to defer the payment so that it is not paid immediately on import but is paid monthly by direct debit. However, obligations to HMRC must be secured by a guarantee from a bank, building society or insurance company, which will usually only come at a cost to the business.

Even though the guidance provides it will be possible to defer the VAT, customs declarations and the payment of any other duties will still be required for imports from the EU in the same way as currently applies when importing goods from outside the EU. This means that for goods entering the UK from the EU an import declaration will be required, customs checks may be carried out and any customs duties must be paid.

Guidance on trading with the EU if there is no deal says businesses "should consider whether it is appropriate for them to acquire software and/or engage a customs broker, freight forwarder or logistics provider to support them with these new requirements". It outlines customs procedures that may mitigate the impact in some circumstances.  

The HMRC VAT guidance also confirms that if there is no deal with the EU, Low Value Consignment Relief (LVCR) will not be extended to goods entering the UK as parcels from the EU. This means that all goods entering the UK as parcels sent by overseas businesses will be liable for VAT unless they are zero-rated or exempt from VAT. For parcels valued at £135 or less, a technology-based solution will allow VAT to be collected from the overseas business selling the goods into the UK.

LVCR currently exempts from VAT goods worth less than £15 which come into the UK from outside the EU. In 2012, the UK removed  LVCR for mail order goods imported into the UK from the Channel Islands, so as to remove the competitive advantage held by suppliers established there.

A further guidance note gives more details on post-Brexit tariffs if there is no deal. For UK exports to the EU, the EU will require payment of customs duty at the rate under the EU’s Common Customs Tariff (CCT).  For goods imported to the UK from the EU, the UK will require payment of customs duty at rates to be set by the UK government. The guidance states that the government will determine and publish these new UK duty rates before we leave the EU. It says that they may be different from the rates in the EU’s CCT.