It’s over five months since the UK left the EU. This article tackles five ‘myths’ about the post-Brexit VAT world.
Myth 1: Postponed VAT Accounting (PVA) is a temporary facility that will end on 30 June 2021.
It’s not clear how this rumour started but PVA is here to stay.
It is a complete winner for UK importers because the payment of VAT is deferred when goods arrive in GB from anywhere in the world, and is declared instead as a reverse charge entry on the importer’s next VAT return.
It is a cashflow no-brainer. One suspects the confusion with this date relates to the time when the need to make a full customs declaration for goods arriving from the EU can be delayed.
Myth 2: Applying the reverse charge for imported goods with PVA always produces a nil payment outcome on a VAT return.
The relevant boxes for the reverse charge for imported goods are Box 1 and Box 4 as far as the VAT amount is concerned, based on the rate of VAT that applies under UK VAT law for the goods in question, eg 5% for smoking cessation products; 20% for computers.
As long as the goods are only used for the taxable supplies of a business, the entries will cancel each other out, ie output tax equals input tax.
But the Box 4 input tax entry must be reduced for any private or non-business use and also if the goods are used for any exempt activities (partial exemption). If an input tax reduction is necessary, it produces a net VAT payment to HMRC.
Myth 3: To benefit from PVA, a business must register online with HMRC before the goods arrive in the country.
A pre-requisite of using PVA is for the importer to have a GB EORI number, issued by HMRC. But PVA is made as a specific election on the customs declaration form each time that goods arrive by ticking payment option G on the form. It is an ‘election’ process and not a ‘registration’ procedure.
Myth 4: If I export goods, they are always zero-rated for VAT purposes, so I don’t need to worry about VAT.
Sales of goods from GB to anywhere in the world outside the UK are now zero-rated as an export as far as UK VAT is concerned. An export was previously only relevant if goods left the EU.
However, VAT has not gone away – you need to consider the indirect tax and duty issues when the goods arrive in the other country. The best outcome is to try and get your customer to act as the importer, otherwise your business might need to register for VAT in that country if it is importing goods and selling them there.
Myth 5: There are no changes in the VAT rules for services post-Brexit.
It is true that the general B2B and B2C place of supply rules are unchanged since 1 January 2021, ie the VAT treatment largely depends on where the customer is based for B2B sales of services and where the supplier is based for B2C sales.
But there is an important list of professional services which are no longer subject to UK VAT if the B2C customer is ‘outside the UK’ – this was only relevant before Brexit if the customer was ‘outside the EU’. The services are listed in VAT Notice 741A, section 12. Examples include accountancy, consultancy, engineering and legal services.