Is import VAT coming after Brexit?

UK businesses may find themselves paying VAT upfront for the first time.

Controversial legislation making its way through parliament will apply when importing goods from the EU after Brexit.

Reverse charge procedure

Currently, if a business acquires goods from within the EU, it accounts for VAT under a reverse charge procedure. Both the output VAT and input VAT are entered on the same VAT return so, for most businesses, there is no VAT cost because the two amounts cancel out.

Imports

The Taxation (Cross-border Trade) Bill will remove the concept of EU acquisitions. Instead, HMRC will treat purchases from the EU in the same way as imports from outside the EU. This is conditional on the Brexit negotiations.

Import VAT will need to be paid at the time of importation, as a condition of clearing customs. This is reclaimed on the next VAT return, but depending on timing there could be a five-month delay before import VAT is recovered. For businesses that only deal with the EU, this could cause serious cashflow problems.

This VAT change could take effect when the UK leaves the EU on 29 March 2019.

Planning points

Businesses can mitigate the cashflow problems around importation:

  • Regular importers can set up a deferment account with HMRC, allowing import VAT to be paid monthly in arrears. It is often necessary to provide HMRC with a costly bank- or insurance-backed guarantee.
  • Firms can file monthly VAT returns if they regularly receive VAT refunds, although this does mean 12 returns a year.
  • Businesses could set up a revolving credit facility to fund import VAT, but this has a cost.

It is best to prepare for the likely outcomes of the negotiations with the EU, such as rules generally applied to countries outside the EU. Please contact us if you want to discuss the potential implications for your business.