Be aware of these significant Brexit VAT changes

Due to the mutual assistance protocol that is part of the Brexit deal, there have been some simplifications to the fiscal representation requirements in certain countries. There were some EU member states that relaxed or even removed requirements related to fiscal representation.

That aside, in general the UK will be regarded as any other third country for the purposes of VAT.

What concerns do businesses face in regard to Brexit VAT changes?

Fiscal representation requirements

Fiscal representation requirements were the primary inconsistencies and uncertainties faced by businesses. Before the Brexit deal, many tax offices insisted on the implementation of fiscal representation by December 31st and then after Brexit, the requirement was removed altogether.

Connecting VAT numbers and EU EORI numbers 

More uncertainties emerged around the linking of VAT numbers to EU EOORI numbers.

Take, as an example, a business being automatically issued an XI EORI by HMRC and then trying to get a DE EORI number. German tax authorities were unable to issue a DE EORI because to the EU EORI system the XI number was already an EU EORI number. But HMRC was unable to link the client’s EU VAT numbers to the XI EORI. A work around was finally found but only after several calls back and forth with the EU Commission and HMRC.

Organizational delays

Tax office backlogs caused issues for businesses awaiting new VAT registrations in EU member states.

In one instance, a business with a German VAT registration application in process had stock held up at customs in Germany. Due to Brexit uncertainties and tax office backlogs, the business was unable to get VAT registered in time and therefore couldn’t import into Germany after Brexit. There were also some businesses that had already agreed DDP terms with their customers but could not fulfill their orders.

Customs procedures and transit arrangements

In addition to the aforementioned issues, significant problems emerged in the form of inconsistencies in the transit arrangements and customs procedures used by the couriers and transport companies moving goods for established UK businesses into Europe. 

It’s quite common for businesses to use multiple providers who, in turn, use a variety of transit arrangements that, from a VAT point of view, can have different consequences. Sorting out these customs and transit issues has created additional workload for businesses and in some cases created more uncertainty.

What is needed in these situations is to understand what transit arrangements are in place and what Incoterms are agreed to is very important. Clear exchange of information between the customs arrangements and the VAT treatment is vital.

What other issues are businesses facing as a result of Brexit VAT changes?

Indirect customs representation

Indirect customs representation is another issue that has come up. Although this is a customs requirement it is indirectly related to VAT in that is has created more uncertainty for businesses. 

As Germany has begun to enforce certain regulations, businesses from third countries wishing to do business in Germany may now need to appoint a German customs representative or agent for imports. This means that even if businesses have acquired a German VAT number and an EU EORI number they may still need to a appoint a German customs representative.

Taxback International is in the process of verifying this with the EU Commission as it is another administrative barrier for non-EU businesses, and it needs clarification. On the face of it, it seems to contradict the EU Commission guidance on the issuing and use of an EORI number. There was also talk that the Netherlands will enforce the same rule, but Taxback International has confirmed with Dutch customs that, at the moment, this is not the case.

Reciprocal agreements

Lastly, there remains uncertainty in regard to the reciprocal agreements between the member stat and the UK as they pertain to foreign VAT reclaim. 

For example in Italy, a UK established business will have to VAT register and appoint a fiscal representative to recover their foreign VAT if their is no reciprocal agreement. There has yet to be official clarification on this particular matter from the Italian tax office. Taxback International is closely monitoring the situation.

Businesses and tax offices alike are still in the process of stabilizing their processes after Brexit. There are deep backlogs for new VAT registrations with HMRC and with EU tax authorities. Both Brexit and COVID have had an incredible administrative impact on business.

Contact Information

Katie Kirwan

Demand Generation Manager

Taxback International

Contact via E-mail