Businesses that trade with the EU will broadly follow the same customs controls as businesses trading with the rest of the world – so they will need to adapt their business to comply with these systems, processes and controls.
How VAT accounting processes will change
If the UK leaves the EU without an agreement, the main VAT place of supply rules will remain the same for UK businesses.
The current ‘place of supply’ rules determine the country in which you need to charge and account for VAT. These rules are in line with international standards set out by the Organisation for Economic Co-operation and Development (OECD).
The rules around place of supply will continue to apply in broadly the same way that they do now. If you’re supplying digital services to non-business customers in the EU the place of supply will continue to be where the customer resides. VAT on services will be due in the EU country within which your customer is a resident.
If you’re supplying insurance and financial services, input VAT deduction rules for financial services supplied to the EU may be changed. We will update businesses with more information soon.
Changes to VAT IT systems
If the UK leaves the EU without an agreement, the UK will stop being part of EU-wide VAT IT systems.
UK VAT Mini One Stop Shop
UK VAT Mini One Stop Shop (MOSS) is an online service that allows EU businesses that sell digital services to consumers in other EU countries to report and pay VAT via a single return and payment in their home country. Non-EU businesses can also use the system by registering in an EU country.
In a ‘no deal’ scenario, you will no longer be able to use the UK’s MOSS portal to report and pay VAT on sales of digital services to consumers in the EU.
If you want to continue to use the MOSS system, you will need to register for the VAT MOSS non-union scheme in an EU country. You can only do this after the date the UK leaves the EU.
The non-union MOSS scheme requires you to register by the 10th of the month following a sale, so you will need to register by 10 April 2019 if you make a sale from the 29 to 31 March 2019, and by 10 May 2019 if you make a sale in April 2019.
Alternatively, you can register in each EU country where sales are made. Go to the EU Commission’s website for more information.
EU VAT refund system
You will no longer have access to the EU VAT refund system but you will continue to be able to claim refunds of VAT from EU countries by using the existing processes for non-EU businesses. This process varies across the EU and you will need to make yourself aware of the processes in the individual countries where you incur costs and want to claim a refund.
There is more information about claiming VAT refunds from EU countries on the EU Commission’s website.
EU VAT registration number validation
This service allows businesses to check whether a customer or supplier’s VAT number is valid. You will still be able to use this service to check the validity of EU business VAT registration numbers.
UK VAT registration numbers will no longer be part of this service. In the event of ‘no deal’, HMRC is developing a system that can continue to validate UK VAT numbers. We know this is important for certain businesses in order to carry out due diligence.
Exhaustion of intellectual property rights
Intellectual property rights give the business, organisation or individual that holds the rights (the right holder) certain exclusive entitlements, which include the right to control distribution of a protected product. The exhaustion of intellectual property (IP) rights refers to the loss of the right to control distribution and resale of that product after it has been placed on the market within a specified territory by, or with the permission of, the right holder.
The UK is currently part of a regional European Economic Area (EEA) exhaustion scheme, meaning that IP rights are considered exhausted once they have been put on the market anywhere in the EEA with the rights holder’s permission.
In a ‘no deal’ scenario, the UK will continue to recognise the EEA regional exhaustion regime from exit day to provide continuity in the immediate term for businesses and consumers.
This approach means there will be no change to the rules affecting imports of goods into the UK, and businesses that undertake this activity may continue unaffected.
Ongoing UK recognition of the EEA regional exhaustion area will ensure that parallel imports of goods, such as pharmaceuticals, can continue from the EEA. A parallel import is a non-counterfeit product which is imported into a country where the intellectual property rights in that product have already been exhausted.
While there will be no change for the importation of goods into the UK, there may however be restrictions on the parallel import of goods from the UK to the EEA. Businesses undertaking such activities may need to check with EU right holders to see if permission is needed.
The implications for UK businesses are that:
- intellectual property-protected goods placed on the EEA market by, or with the consent of, the right holder after the UK has exited the EU will continue to be considered exhausted in the UK. This means that parallel imports of these goods from the EEA to the UK will be able to continue unaffected
- goods placed on the UK market by or with the consent of the right holder after the UK has exited the EU will not however be considered exhausted in the EEA. This means that businesses exporting these goods from the UK to the EEA might need the right holder’s consent.
The government is currently considering all options for how the exhaustion regime should operate after this temporary period, and is undertaking a research programme to support this decision. The government will be working closely with business representatives, trade associations and other stakeholders on the implications of our plans.
The Intellectual Property Office has also published a factsheet on intellectual property rights and EU exit.
Actions you can take now
- Consider any changes you may need to make to adapt to new processes and systems.
- If you deal with intellectual property-protected goods, you may wish to seek legal advice on how a ‘no deal’ scenario could affect your business model or intellectual property rights.
- The passport rules for travel to most countries in Europe will change if the UK leaves the EU on 29 March 2019 (may also apply to new exit date on 31 December 2020) without a deal. Read the government’s guidance on Travelling to the EU with a UK passport if there’s no Brexit deal and, if relevant, ensure your employees and customers are aware of the potential changes.
- Stay up-to-date with these changes by registering for email alerts. Follow the link, add your email address, select ‘Submit’, select ‘Add subscription’ and choose ‘EU Exit’ then select ‘Submit’.