Summary: UK leaving the European Single Market

The Effect of the UK’s departure from the EU

High Level Summary

The UK leaves the European Single Market after 31 December 2020.

If you currently conduct any trade with other EU states then you will find yourself operating under new rules;

  • Border controls will be re-introduced on European transactions and will now apply to all transactions physically crossing the UK border.
  • Appropriate documentation (customs declarations etc.) will be required for all goods physically crossing the UK border.
  • There is the potential for Import Duties on all imports after 31 December 2020. Appropriate arrangements to pay these must be in place before HMRC will release any goods affected to their owners.

This new border regime will be familiar to you if you already have traded regularly with states outside the EU. There are, however, some additional changes;

  • The VAT regime will now apply to all transactions – not just to UK and EU ones.
  • Postponed VAT Accounting (PVA) is being introduced for virtually all trade not internal to the UK. [In most cases, this is not significantly different in effect from the reverse charge accounting current required for transactions with other EU states.]
  • Certain small consignments made by certain types of supplier under £135 value are correctly accounted for in certain circumstances under mandatory non-standard alternative VAT rules. If a UK VAT-registered business provides such suppliers (an open market platform or direct sellers based overseas) with its own VAT registration number, the normal rules will again apply provided the supplier’s invoice includes a reference to ‘reverse charge’, for example, ‘reverse charge: customer to account for VAT to HMRC’.”

The Irish Border

This is a more complex situation, and the details are still being finalised. At present, the situation is as follows;

  • There will be no border controls on the Irish land border, as Northern Ireland will remain within the European Single Market for trading wholly within that market as well as within the UK’S own Single Market.
  • UK VAT rules will continue to apply for internal UK trade with Northern Ireland and for trade internal to Northern Ireland itself.
  • Accordingly, there will continue to be no import duties on Northern Irish goods entering the mainland UK or vice-versa.
  • Similarly will be no import duties levied on goods entering Northern Ireland from the EC or vice-versa.
  • However, in order to allow Northern Ireland to be a member of both customs unions and to enforce both the UK and the EC’s border and tariff regimes there will be border controls on goods trade with Northern Ireland and the mainland UK.
  • This is designed to ensure that EC imports into Northern Ireland are not entering into free circulation in the mainland UK without passing through the UK border and tariff regime and that UK trade with Northern Ireland does not enter free circulation outside Northern Ireland itself without passing through the EC border and tariff regime. Such trade may therefore be subject to import duties.
  • A Northern Irish entity exporting or importing to any continuing member of the European Single Market will thus make such sales/purchases after 31 December exactly as at present – including with regards to VAT. As such, EC Sales returns will still need to be made – These will be the only sales made by any British business on which existing EC sales reporting will continue to apply after 31 December 2020.
  • Imports to/Exports from Northern Ireland to countries outside the EC will follow the new mainland UK regulations.
  • One odd change to current VAT practice does arise from this, if you are a business making Internal transfers of goods [not services] from your establishment/s on the mainland to Northern Ireland on or after 1 January 2021;

When a VAT registered business moves goods from Great Britain into Northern Ireland, VAT will be due. The business will need to account for VAT on the movement. This should be included as output VAT on the VAT return. Where the goods are being used for taxable sales, the VAT may also be reclaimed as input VAT on its UK VAT return, subject to the normal rules.”

Click here for HMRC Details.

This can be easily accounted by such businesses by making a domestic sale to yourself and raising Output VAT upon it at 20%. If such transfers are of goods for resale by the entity’s own operations in Northern Ireland, they should then also book a purchase from themselves for the same net amount and reclaim that identical VAT.

MOSS VAT Returns – on sales of digital services to EU nations

For sales made on or after 1 January 2021, you will not be able to use the UK’s VAT Mini One Stop Shop (VAT MOSS) service to declare sales and pay VAT due in EU member states. The final return period for the UK’s VAT MOSS system will be the period ending 31 December 2020. You should only include sales made before 1 January 2021 in your final return. Your final return should be submitted by the 20 January 2021.” [HMRC]

For such services made by UK entities after on or after 1 January 2021 with a place of supply in the EU – the selling entity will therefore need to either re-register for VAT MOSS in a remaining EU member state (one in which they sell services and thus let that state’s VAT tax authority, rather than HMRC, co-ordinate their position under the same general EU MOSS rules), or the entity registers for VAT in each EU member state where they sell digital services to consumers and makes VAT returns under that state’s normal rules.

KashFlow offers a compliant solution

The above changes to KashFlow will be in place before 1 January 2021, and these changes have been communicated to you in advance. This is to ensure KashFlow remains compliant for the new regulations.

However, you will also need to make yourself compliant with the HMRC regime itself. This is your responsibility.

Your responsibilities

If you are not fully compliant with the new UK Border Regime before 1 January 2021, then at the very least your imports/exports from the EU will be delayed by customs procedures. Your VAT Return is also likely to be incorrect.

If you are an MTD-mandated business, the data in your VAT return is required to be pulled directly from digital bookkeeping records. Simply put, if those records are wrong, your VAT Return/s will be wrong. You can no longer correct your VAT Return manually, so you will then need to revise the underlying data in your accounting software and submit a repaired return.

Repairing returns may lead to HMRC levying penalties on top of any VAT you may owe

At a minimum, all businesses will require a GB EORI number should any sales or purchases physically cross a UK-EU border after 31 December 2020. It can take up to a week to get this number and takes 5-10 minutes to apply.

VAT-registered businesses with EU trade were previously enrolled automatically by HMRC with an EORI number, so you should check whether you already have been assigned a number before applying on-line.

Further information, including a link to apply for an EORI number, is available here.

A user hub of all elements of the position can be found at;

Exporting and importing businesses: prepare for 1 January 2021Click here
The Border Operating Model (detailed report)Click here
Check when you can account for import VAT on your VAT Return from 1 January 2021Click here
For Northern Ireland monitor the HMRC website for developing newClick here
Changes to accounting for VAT for Northern Ireland and Great Britain from 1 January 2021Click here

If you are ready to implement the full border procedures from 1 January 2021, this will also ensure the provision to you by HMRC of an online Monthly Postponed Import VAT Statement (MPIVS).

This will supplement the existing monthly statement (C79) of imports and exports passing through the UK Border. The C79 currently includes only non-EU imports and exports, but after 31 December 2020 it will include all import and exports.

Together these documents will help you ensure that the import VAT figures in your VAT return align (as required) with your border records.

See how IRIS KashFlow works with your business and your books