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ESSENTIAL TIPS TO MANAGING UK VAT

31st October came and went with Boris Johnson’s “do or die” pledge to leave the EU with or without a deal on that date proving to be an empty promise.  We now have a General Election to contend with on 12th December so there is still considerable uncertainty as to what form Brexit might take and when it might occur. This makes it difficult for businesses to plan for the wide range of possible outcomes, particularly in relation to trade between Republic of Ireland (“RoI”) and Northern Ireland/rest of UK (“NI/UK”) where border issues have been a particular focus of negotiation. Businesses will need to be flexible.

At present, goods may move freely between RoI and NI/UK.  RoI businesses selling to VAT registered businesses in NI/UK sell without charging Irish VAT and the customer accounts for UK VAT on receipt of the goods under EU reverse charge rules.  RoI businesses selling to non-business customers in NI/UK will charge Irish VAT but when the value of sales has exceeded the Distance Selling threshold of £70,000, the RoI business is required to register for and charge UK VAT on these sales instead of Irish VAT.

Following a No-Deal Brexit, or any form of Brexit that involves NI/UK leaving the EU Customs Union, exports of goods from RoI to NI/UK will create duty (tariff) and VAT issues.  There may also be regulatory and product certification issues but that is outside the scope of this article.  Each RoI business will need to consider the impact of this on its particular product line and customer profile.

Post Brexit, HMRC (UK tax authority) has announced that the current reverse charge rules will continue to apply for UK businesses importing from RoI, rest of EU and also for imports from outside the EU.  This means that UK importers will not have to physically pay import VAT to clear imports through UK Customs.  Instead, they will report the import VAT due on their VAT return and then claim back as input tax.  This relaxation will not apply to Customs Duty (import duty) which may become payable as goods enter the UK.  RoI exporters will need to consider how they deal with this in the light of their particular NI/UK customer base and may need to review their standard contracts and terms of business. They may wish to sell goods Ex Works so that the customer takes delivery at the supplier’s premises and therefore becomes responsible for transport, insurance, duty and VAT.  Alternatively, they may wish to sell on DDP (Delivery Duty Paid) terms so that the RoI supplier is responsible for transport, insurance, duty and VAT.  This will make life simpler for UK customers as they will not have to deal with any Customs paperwork and formalities to clear the goods into NI/UK.

RoI businesses will need to apply for an EORI (Economic Operator Registration and Identification) number if they do not currently have one.  The EORI number is required for dealing with Customs when importing or exporting outside of the EU. All goods must be classified for Customs purposes when importing or exporting into or out of the EU and the assigned classification code will determine the Customs Duty to be paid on imported products.    

In general, a RoI business that already has an EORI number issued by Revenue Ireland will not need to apply for a UK EORI number from HMRC as well.  However, this is not always the case as there will be some situations where a RoI business will need to register for a UK EORI number as well:

  • If a RoI business with a UK branch exports goods from RoI to its UK branch, then it will be responsible for making an export declaration to RoI Customs and an import declaration to UK Customs. Therefore, it will need an EORI number issued by the EU and an EORI number from the UK.
  • Some sale contracts may state that either the buyer or the seller are responsible for both the export declaration and import declaration. The responsibilities of each party are often set out in a sale contract using ‘Incoterms’, the international set of trading terms and conditions used in international trade. If the RoI business is responsible for both the export declaration from RoI and import declaration into the UK then it will need both an EORI number issued by the UK and an EORI number from the EU. This would be the case if the RoI supplier is selling on DDP terms as explained above.

RoI businesses that need to get an EORI number issued by the UK can do so online on GOV.UK - https://www.gov.uk/eori .  The application should take only a few minutes and is free of charge.

RoI businesses may wish to simplify and speed up their supply chain to UK customers by keeping stock in NI/UK (especially mainland UK) and making deliveries direct from the UK warehouse.  The implications of this are as follows:

  • The RoI business will need to register for UK VAT. 
  • As mentioned above, the RoI business will need to apply for a UK EORI number and will be responsible for all Customs paperwork and duty payable on import into the UK
  • Movement of own goods from RoI to the UK warehouse will be dealt with under existing reverse charge rules.  The UK VAT registration will record UK output tax due on the movement into the UK but this will then be reclaimed as input tax on the same UK VAT return.  Consequently, there will be no UK VAT payment due at this stage. 
  • When the goods are sold to the UK customer, 20% UK VAT will be charged and this will be reported and paid to HMRC on quarterly VAT returns.
  • Provided the sales contracts are made by the RoI head office, there will be no trading in the UK for UK corporation tax purposes.  All profits from the sales will be reported for tax purposes in RoI only.
  • This could be particularly attractive where the UK customers are private individuals as it avoids them becoming involved in Customs and import VAT declarations if they are importing goods valued at more than the £135 ‘Low Value Consignment Relief’ threshold.

Alternatively, the RoI business could establish a trading presence in the UK by registering a branch here or a UK subsidiary.  In general, it will be simpler to incorporate a UK subsidiary as the process is quicker, it creates a more reassuring presence in the UK as far as customers are concerned and it all serves to ring-fence risk by isolating the UK business from the RoI parent.  The UK subsidiary would act as sales and distribution hub for the UK market by importing goods from the RoI parent and selling to UK customers.

Where the UK branch or subsidiary of the RoI business is importing goods into the UK, it is strongly recommended that the branch/subsidiary registers for Transitional Simplified Procedures (“TSP”). TSP was specifically designed for EU Imports, from RoI (and rest of EU) to make it easier if the UK leaves without a Brexit deal. TSP allows a registered Importer to file Customs paperwork on goods arriving into the UK from elsewhere in the EU. Goods will be able to move more freely, as the Importer is only required to make a full (supplementary) Import declaration at a later date, by the end of the fourth working day of the following month. Payment of any Customs duty, and VAT is deferred too. The UK business will need to have a UK EORI number (as well as a UK VAT number) before it can apply for TSP.  Registration can be made online at: https://www.gov.uk/guidance/register-for-simplified-import-procedures-if-the-uk-leaves-the-eu-without-a-deal  The application is free of charge.