VAT and Brexit
In the context of a no deal scenario in which the UK became a third country for VAT purposes the following provisions would apply. There is a distinct possibility that even in a no deal scenario, special arrangements may be made in respect of some VAT issues, in particular for certain purchases across the Northern Ireland land border.
The UK has passed legislation which preserves the broad system of value added tax. In the event of a hard Brexit, It will cease, to be part of the European system of value added tax, so that some of the interlocking rules and facilitations will no longer apply. This will have cash flow implications for some businesses which import from or export to the United Kingdom and for retail buyers who purchase from the other jurisdiction.
Acquisition by Irish Business from EU Business
At present where a trader who is registered for VAT in Ireland acquires goods from another EU country (an intra-EU acquisition) the position is as follows. The acquisition of the goods is liable to VAT in Ireland as a so-called intra-EU acquisition at the Irish VAT rate.
The VAT is accounted for in the usual way on the VAT returns. The VAT payable is simultaneously deducted as an input credit on the acquisition by the trader where the acquisition is for the purpose of an ultimate Vatable supply.
If all goods supplied by the business which acquires the goods are subject to VAT , then there should be no VAT charge at the time of import on in the next VAT return. VAT is paid on the sale of the goods domestically to a non- Vat registered business or more commonly a private buyer / consumer.
The ultimate liability for VAT and the deductibility of VAT on goods acquired for the business will depend on whether the business supplies taxable or goods subject to VAT. Its ability to deduct goods acquired for the business depends on whether they are used wholly or partly for business subject to VAT.
EU Acquisition by VAT Exempt Business or Private Person
In the case of an intra-EU acquisition of goods by an entity which is not subject to VAT (VAT exempt, but not zero rated) such as certain financial services entities and others, its acquisitions are not subject to VAT in Ireland, if they are below the intra-EU registration threshold. VAT is payable in the member state of the goods in which the goods are purchased.
Where the threshold for intra-community acquisitions is exceeded the trader must register for VAT and account for VAT as VAT registered trader.The intra-EU acquisition VAT registration threshold is €41,000 at present.
Once the entity exceeds the intra-EU threshold, it must register for VAT in the state of supply and is liable for VAT in the state on intra-EU acquisitions. VAT is not payable in the member state of the goods in which the goods are purchased.
Special rules apply to mail-order and distance selling. Where a mail-order, telesales, e-commerce or other type of distance sale business located in another state sells goods into Ireland in excess of €35,000 per annum, the sale of goods is taxable in Ireland rather than member state where the seller is located. The seller must register and account for VAT in Ireland.
Equally in the case of an Irish business undertaking distance sales into another EU state, it must register in that state where its sales / supplies exceed the distance sales threshold for the state.
Supply by Irish Business to EU Business
Where a business registered (or registrable) for VAT in Ireland, supplies goods to VAT registered traders in another state, the supply is zero rated in Ireland. This means that the trader may deduct VAT on acquisitions for that purpose. It is the same as any other zero rated supply. This is in contrast to the position with exempt supplies in respect of which VAT is not deductible on acquisitions (purchases) at all.
Where the goods are supplied to a registered trader in another EU state that latter trader accounts for VAT under its domestic law. The position is the reverse of that above.
Where goods are sold to a non-registered person such as private individual in another EU state, VAT is payable in the supplier’s state. Accodingly VAT is chargeable in Ireland in the case of an Irish supplier.
If it undertakes distance sales above the threshold in the state of supply, it must register for VAT in that latter state and pay and account for VAT there. In this case VATi is not payable in the home state (here Ireland).
Supply Outside EU (UK post Brexit)
The supply of goods or services is potentially subject to tax such as VAT in the country of sale/acquisition or where the goods or services are provided. In the case of the United Kingdom, it is proposed to retain a VAT system equivalent to that in Ireland and the EU generally, so that VAT will be chargeable on the imports of goods and the provision of services in the UK under the same conditions as apply to any third country, post Brexit.
Where a taxable person supplies goods to other EU states or outside the EU as to more than 75% of its turnover it may receive an authorisation as a qualifying person. This authorises the trader not to have to pay VAT on its own purchases for that business and subsequently to have to reclaim it.
The value of imported goods is the value for customs purposes increased by customs duty and anti-dumping duty and excise duty (excluding VAT).
VAT at point of Import
In the absence of agreement between the UK and the EU otherwise, VAT will be payable at the point of importation on goods and services from United Kingdom after Brexit.
A trading businesses may qualify for deferred payment of VAT so that the liability does not arise until the 15th or 23rd day of the month after importation. Revenue authorisation is requrired. This facilitates simultaneous deduction of the input credit against the acquisition VAT.
Irish legislation has provided for deferred VAT accounting in the event of Brexit. The implementing rules have not made as on March 2019. A guarantee is likely to be required, some period of grace may be given before it is required.
Import VAT is similar to customs duty in some respects. Arrangements may be available for the deferral of liability equivalent to those for customs duty. See the detailed articles elsewhere in relation to these reliefs. They include
- temporary importation
- external transit arrangements
- temporary storage arrangements
- Customs warehousing arrangements
- Inward processing arrangements
- outward processing arrangements
Exports to UK
A zero rate of VAT applies to goods exported from the European Union. This will apply to the sale of goods to the United Kingdom after Brexit. It must be proved that the goods have been dispatched directly out of the EU by the seller to a purchaser established outside the state.Evidence of supply must be available.
In the case of goods carried on the trader;s own vehicles the export notification message issued to the exporter for customs purposes is usually used. In the case of carriage by sea the bill of lading certificate of shipment or shipping advice notice is used proof. The certificate of posting may be used in the case of postal sales. In the case of goods exported by air, the air waybill or other equivalent information may be used
Import VAT and Brexit
Traders who are below the VAT registration threshold or are in a VAT exempt business must pay import VAT and and may not reclaim it later. The procedures are the same as customs duty
In the absence of new arrangements with UK, imports from the UK by unregistered persons to private persons exempt businesses and sub-threshold businesses are subject to immediate payment of VAT in Ireland rather than payment of VAT in the place of supply in this case United Kingdom.
The supply from the UK would be exempt. The sale and dispatch out of the UK must be proved to reclaim UK VAT.
UK Perspective Post Brexit
Exports from Ireland to the UK will be subject to the zero rate of VAT in Ireland as exports. They will be subject to UK VAT as imports.
Where UK businesses import goods from the EU the UK government proposes to introduce postponed accounting for import VAT for VAT registered businesses in the UK. A guarantee is likely to be required. In this case, businesses would be able to account for import VAT on their VAT return rather than payment at point of entry at the border. Customs declarations and payment of other duties may still be required where applicable. They may also be deferred under a guarantee.
When UK businesses export goods to EU businesses they will continue to be zero rated. EU sales lists will no longer be required in the absence of agreement for UK sales.U K businesses exporting to the EU must obtain evidence that the goods have left the UK in order to justify the zero rating of the supply for UK purposes. UK businesses will continue to be able to claim VAT refunds from EU states using the procedure for non-EU businesses.
Under current EU rules, goods entering the EU will be subject to VAT and (and customs duties in some cases) in the EU country of import. In some cases VAT may be chargeable at the border. The particular position will be determined by the status of the buyer, the nature of the goods and the rules of the country concerned, which however have been largely harmonised.
Low Value Relief
The present low Value consignment relief will apply to goods entering the UK from the EU. In principle goods entering the UK sent by overseas businesses will be subject to VAT (where as in most cases, VAT is chargeable.
It is proposed in the case of parcels valued up to £135 that a technology-based solution will allow VAT to be collected from the overseas business seller. Overseas businesses will be expected to register with HMRC and account for VAT when due. A unique identifier will accompany parcel sent to the UK.
On goods worth more than £135 sent in parcels the UK will collect VAT from UK recipients in accordance with current procedures in respect of third country suppliers.