Despite parliament recently voting to rule out a no-deal Brexit – the possibility of the UK crashing out of the European Union without a deal still remains a possibility. Some guidance has been published by the government and we can expect more in the future.
In the event of a no-deal Brexit, we don’t expect there to be many rule changes affecting Crunch clients – unless you trade with customers in the EU.
This article summarises the main changes arising in the guidance published by HMRC as at August 2019. Naturally, many of the changes are vastly technical in nature and will be supported by more detailed guidance from HMRC if necessary.
Value Added Tax (VAT) and Brexit
The UK’s current VAT rules can be summarised as follows:
- VAT is charged on most goods and services sold within the UK and the EU
- VAT is payable by businesses when they bring goods into the UK – there are different rules depending on whether the goods come from an EU or non-EU country
- Goods that are exported by UK businesses to non-EU countries and EU businesses are zero-rated, meaning that UK VAT is not charged at the point of sale
- Goods that are exported by UK businesses to EU consumers have either UK or EU VAT charged, subject to distance selling thresholds
- For services, the ‘place of supply’ rules determine the country in which you need to charge and account for VAT.
UK businesses importing and exporting goods if there is a no-deal Brexit
The latest guidance on VAT in the event of a no-deal Brexit was published by HMRC on 23rd August 2018 and states:
‘If the UK leaves the EU without an agreement, the government will introduce postponed accounting for import VAT on goods brought into the UK. This will help ensure businesses are not hit by negative cash-flow and this is a concession that will be viewed favourably by UK businesses’.
This means the UK would no longer be part of the EU VAT regime, and that imports from the EU would become subject to UK import VAT for the first time. This VAT would be due for payment before the goods were cleared by UK customs.
To alleviate this potential new cashflow burden, the UK importer liable for the import VAT can account for the VAT in their subsequent UK VAT return using the reverse charge mechanism. This is known as ‘Postponed accounting’ and means no cash payment for the import VAT needs to be made at the point of entry of the goods to the UK.
The new rules will apply to goods from both EU and non-EU countries, and will help businesses currently importing goods into the UK from other EU member states to reduce any cash flow impacts after the UK leaves the EU.
Businesses or individuals who aren’t VAT registered in the UK won’t be able to account for import VAT in this way. They’ll need to pay import VAT immediately at the time of import.
If the UK leaves the EU without a deal, the government’s aim will be to keep most VAT accounting procedures as close as possible to what they are now. We summarise the situation below.
HMRC sent instructions to around 145,000 VAT-registered businesses which trade only with the EU in early December 2018. Subsequently, HMRC wrote to businesses trading with the rest of the world and other traders in excise-goods. The letters say that businesses importing and exporting goods need to take the following action:
- Register for a UK Economic Operator Registration and Identification (EORI) number. Businesses that already have an EORI number from another member state (one that does not start GB) can continue using it for now
- Decide if they want to hire an agent to make import and/or export declarations, or make such declarations themselves by, for example, buying software that interacts with HMRC’s systems
- Contact the organisation that transports (or moves) their businesses goods to see if they’ll need to provide any additional information to them.
- Get ready to comply with any instructions that may be issued by EU-member states that they export into. For example, the recently published French customs guidance after Brexit.
UK businesses supplying services to the EU if there is a no-deal Brexit
If the UK leaves the EU without an agreement, the main VAT ‘place of supply’ rules will remain the same for UK businesses, so no major changes in VAT accounting are expected. As usual, at the detailed level, there could be some changes affecting UK businesses, as shown below.
|For UK businesses supplying digital services to non-business customers (ie. private individuals) in the EU. This is also known as ‘B2C’
||The ‘place of supply’ will continue to be where the customer resides. VAT on services will be due in the EU member state where your customer is resident.
|For UK businesses supplying insurance and financial services
||Input VAT deduction rules for financial services supplied to the EU may be changed. Further guidance is awaited.
|For UK businesses that use the VAT Mini One Stop Shop (MOSS)
||The UK’s Mini One Stop Shop (MOSS) portal to report and pay VAT on sales of digital services to consumers in the EU will be withdrawn.
Businesses that want to continue to use the MOSS system will need to register for the VAT MOSS non-Union scheme in an EU member state. This can only be done after the UK leaves the EU.
The non-Union MOSS scheme requires businesses to register by the 10th day of the month following a sale.
Providing services to any country in the EU, Iceland, Liechtenstein, Norway or Switzerland after Brexit
If the UK leaves the EU with no deal, the UK will no longer operate under the European Economic Area (EEA) regulations for the cross-border trade in services.
This means that the rights and protections provided by the EU Directives and EU Treaty rights of freedom of movement and freedom of establishment will no longer apply to the UK.
UK businesses will no longer be treated as if they were local businesses. Services provided by UK businesses and professionals will be regarded as originating from a ‘third country’. UK firms and service providers may face additional legal, regulatory and administrative requirements as a result.
Most EU countries have published their own rules covering Brexit. By way of example, the French government has introduced new legislation covering:
- the movement of people and goods between the two countries
- British people living in France
- French people living in the UK who return to France
Cross border trade regulations post-Brexit
If you’re a UK business or professional providing services in the EU, Iceland, Liechtenstein, Norway or Switzerland, you’ll need to check the national regulations of the country you’re doing business in to understand how best to operate. This includes areas such as:
- getting authorisations or licences to provide a service
- complying with specific local business regulations.
See the Government’s selling services guides to each country for more information.
As highlighted above, if the UK leaves the EU without an agreement, the main VAT ‘place of supply’ rules will remain the same for UK businesses, though there may be some areas of change in the detail.
Establishing and structuring your business
If you’re a UK service provider or business, you may face restrictions on your ability to own, manage or direct a company registered in an EEA state. You should be prepared for:
- additional requirements on the nationality or residency of senior managers or directors
- limits on the amount of equity that can be held by non-nationals.
You can find out more in the relevant country guide on the Gov.uk site.
Business travel and entry requirements post-Brexit
If you’re a UK national, you’ll need to check whether you need a visa or work or residence permit if you’re either:
- providing services
- on a placement based in the EU or Iceland, Liechtenstein, Norway or Switzerland
You’ll need to comply with the immigration controls in the country where you are selling services.
You can read advice about travelling to specific countries, including travel entry requirements and how to stay safe while you’re there.
Sending workers to the EU, Iceland, Lichtenstein, Norway or Switzerland
Currently employers and their workers only need to pay social security contributions (such as National Insurance contributions in the UK) in one country at a time. This may change if the UK leaves without a deal. Employees may need to make social security contributions in both the UK and the country in which they are working.
HMRC’s guidance about what you need to do can be found on the Gov.uk website. It’s likely you’ll need to seek information from a specialist employment advisor if you believe these rules apply to your business.
Recognition of professional qualifications
If you’re seeking recognition of a UK qualification in an EU member state, you’ll need to check the rules for work on a permanent, temporary and occasional basis. This area is complex and subject to the framework of rules for the Mutual Recognition of Professional Qualifications (MRPQ) between countries in the EEA and Switzerland.
It’s expected that, after Brexit:
- if your qualification is already recognised as valid, it will remain valid
- UK nationals who want to get their professional qualifications recognised in the EEA or Switzerland will be assessed under the rules of the individual country
- UK nationals wanting to provide temporary and occasional professional services in the EEA or Switzerland will have to do so under each country’s national policies and rules.
You can find out more in the selling services country guides.
Citizens’ rights agreements post-Brexit
The UK has reached agreements on citizens’ rights with the 4 EFTA countries (Iceland, Liechtenstein, Norway and Switzerland) which will apply if the UK leaves the EU with no deal. These agreements include recognition of professional qualifications held by these countries’ nationals and UK nationals. More guidance is awaited.
Data protection post-Brexit
You’ll still need to comply with data protection laws if the UK leaves the EU with no deal.
You may need to make changes to ensure that your business still complies. For more information read the country guides to selling services.
If you’re a Crunch client and you need further advice, contact your client management team.
If you aren’t yet a client, find out how Crunch can help you.