Brexit: avoid traps with zero-rating

Old procedures

Until 31 December 2020 business-to-consumer (B2C) sales of goods made by ar business were subject to UK VAT when sold to an EU customer. Sales to a VAT-registered business in the other country were zero-rated, with the customer accounting for the VAT on their own return instead. The exception was if the business exceeded the distance selling threshold for B2C sales, selling more than €35,000 or €100,000 of goods in a particular country on a calendar year basis.

Each EU country can choose one of these two limits. If this happened, the business registered for VAT in the other country and charged the VAT rate that applied there for the goods in question.

For sales to VAT-registered customers in other EU countries, businesses also had to complete EC Sales Lists. These reports are no longer necessary for a GB based business (England, Scotland and Wales), only for those based in Northern Ireland. This is because Northern Ireland is still part of the single market.

Changes on 1 January 2021

If a business is based in GB and is VAT registered in EU countries because of the distance selling rules, it should now deregister. The distance selling rules are no longer relevant to a GB business following the end of the EU transition period. It will now be necessarty to pay import VAT when the goods arrive in the EU country. All goods sold to a customer outside GB (excluding sales to Northern Ireland) qualify as zero-rated exports as far as UK VAT is concerned, both business-to-business and B2C sales.

Businesses must make sure they keep proof of export as part of their accounting records to clearly show that the goods have left GB and arrived in the other country. This proof should include evidence of shipment and commercial documentation about the sale, e.g. customer correspondence, insurance arrangements, order details, etc.

For sales of goods to Northern Ireland the seller must still complete customs declarations. These are needed to ensure that the goods are not at risk of being supplied onwards in Ireland, i.e. entering the EU.

Guidance on the new rules is available in VAT Notice 703. 

There are important changes taking place in the EU which will affect businesses that  import goods into EU countries. The main change is that they must register for a new scheme called the Import One Stop Shop (IOSS) if any of the shipments have a value of €150 or less.

Sales VAT is charged on these exports, based on the rate that applies in the customer’s country. The tax must be declared on a single monthly IOSS return submitted to the tax authority in the member state where the business has registered for the scheme.

Tip. A business can register for the IOSS in any EU country it wishes, but it makes sense for it to choose one where English is commonly spoken, e.g. Ireland, Netherlands, Malta, etc.