Whilst the UK technically left the EU at the start of 2020, we have been operating on a stand-still basis under the same VAT rules during this transitional year. This will change as of 1 January 2021, even with a free trade deal.

Pre-Brexit

Until the end of 2020, goods arriving in the UK from the EU were not subject to customs duties, and VAT was accounted for quite simply on VAT returns as “acquisition VAT”. Goods imported from a non-EU location were subject to import VAT and duties payable at the port and time of entry. Import VAT was treated a separate payment and collected as a duty of customs. To reclaim this, the importer required a C79, sent by post from HMRC detailing the VAT paid. This was issued to the named importer based on the import declaration, where the importer’s EORI number should be declared.

Post-Brexit

From 11pm on 31 December 2020, goods arriving from the EU are now treated as imports. Following the Free Trade Agreement (FTA) with the EU, duties should not apply to EU “origin” products. Importing from the rest of the World, will generally remain unchanged.

A new postponed import VAT accounting procedure, detailed below, will be available to account for import VAT more easily and cheaply. In some cases, the previous import VAT procedure will remain.

Importing from the EU

Imports from the EU into GB (England, Scotland, Wales) will see significant changes *. In summary, post-Brexit:

• Goods arriving from the EU into GB will be considered an import and will be subject to import VAT and customs duties (where applicable).
• EU goods will now require customs declarations at import, which will increase the administration involved.
• Postponed import VAT accounting will be available.
• Following the last-minute FTA with the EU, customs duties will not apply to EU-origin imported goods. Goods imported from the EU that either wholly or partly originate from outside the EU may be subject to customs duties, depending on their origin, the type of product and whether the UK has an FTA with that originating country.
• At present the UK and EU have similar international trade agreements, but as these diverge this duty issue will be an area to monitor.
• Increased verification procedures will apply and HMRC may now also select EU imports for additional checks, which could delay these.
• Moving goods across the GB/EU frontier multiple times will multiply customs declarations and VAT compliance. It may be preferable to apply for specialised regimes to keep the goods in suspended status to ease administration.
• Where goods arrive in GB at the end of a long supply chain in the EU, after toll manufacturing in an EU country, or after an import into the EU from overseas, then any EU simplification procedures that businesses have been relying on will no longer apply, giving rise to new obligations including additional VAT registrations.
• Current EU-wide business structures will need to be reviewed, and there are considerable implications for GB businesses importing into the EU as well as into GB.
• There will be a phased introduction of the new rules in the first 6 months of 2021, as detailed below.

*NB In Northern Ireland more complexity will apply as it will remain part of the single market for many aspects. Those affected by trade involving NI should seek additional advice. 

Phased Introduction of Rules: First 6 Months of 2021

The new import procedures for EU imports into GB will be introduced in three stages in 2021 (in effect creating a 6-month transitional period), in:

1) January;
2) April; &
3) July.

These phased measures will apply to imports of EU goods only. Imports of non-EU goods will remain unchanged and subject to full import controls as before. Import declarations for customs purposes will be required for goods from the EU. After the six-month transitional period, carriers will be legally responsible for ensuring Entry Summary Declarations are submitted pre-arrival to HMRC at the time specified by mode of transport.

From 1 January 2021

Importers:

• will need to start keeping sufficient records of imported goods;
• will need to complete customs declarations (Entry Summary Declarations), but will have up to six months to submit these;
• will need to pay any applicable customs duties/tariffs on all imports, however payments can be delayed for up to 6 months until submission of the customs declarations;
• should be prepared for additional checks on controlled goods (e.g. alcohol, tobacco);
• should prepare for postponed import VAT accounting VAT return changes; &
• will face physical checks on all high-risk live animals and plants, which will take place either at the point of destination or other approved premises

In effect, the 6-month transition period permits importers breathing space to submit customs declarations and pay any duties that will apply from 1 January 2021. Many checks will take place away from the frontier.

Additionally:

• Safety and Security declarations will not be required for 6 months for all goods;
• A full customs declaration will be required when moving controlled goods such as tobacco and toxic chemicals into the country as per imports from non-EU locations;
• Live animal and high-risk plant and plant product imports will require pre-notification and health documentation from 1 January, as will high-risk animal by-products (ABP); &
• Physical checks at point of destination or authorised premises will take place for high-risk goods, whereas documentary checks will be performed remotely.

From 1 April 2021

From this date pre-notification and the relevant health documentation will be required for all products of animal origin (POAO), e.g.
(i) Meat,
(ii) Pet food,
(iii) Honey,
(iv) Milk,
(v) Egg products, &
(vi) All regulated plants and plant products.

From 1 July 2021

• the transitional period ends, and customs declarations and duty payments will apply to all goods at the point of importation.
• full declarations for Safety and Security will be required;
• there will be an increase in physical checks and sample taking on SPS [Sanitary and Phytosanitary] commodities; &
• checks for animals, plants and their products will occur at GB Border Control Posts.

Postponed Import VAT Accounting

At present, import VAT paid at the point of entry into GB is reclaimed from HMRC by the importer upon receipt of a C79 form. This can take 6 weeks or longer to arrive. A cash-flow delay is created.

Postponed import VAT accounting will require simple entries on the VAT return showing import VAT due to HMRC and, for most businesses, the same VAT reclaimable from HMRC. Unless the importer faces a general restriction on VAT recovery, this should be a simple paper exercise. Postponed import VAT accounting will apply to all imports, i.e., from non-EU and EU countries from 1 January 2021.

However, this procedure is not automatic. Importers will need to select this option on their customs declaration, or request that their customs agent do this when completing the declaration. It is important that the customs declaration show the importers VAT number and/or EORI number.

This process will apply for the import of goods into GB from outside GB, and the import into NI for goods from outside the UK and EU. NB NI will remain in the single market so the new rules will not apply there for EU goods. The position in NI is more complicated so advice is recommended.

In some cases, it is compulsory to use postponed import VAT accounting. This applies where the importer imports non-controlled goods into GB between 1 January and 30 June 2021 and:

• delays the customs declaration; or
• uses a simplified customs declaration.

Importers will need to select on the customs declaration the requisite option for this method of accounting for import VAT, or where using agents, should instruct them of their preference.

Low Value Imports & £135 consignments

The £15 limit for duty and VAT free imports has been scrapped. Imports in consignments valued at £135 or less will be subject to a range of new rules, which are covered separately.

Importers Checklist

• Ensure an EORI number is obtained and correctly applied to import declarations. Most UK VAT registered businesses should already have one.
• Review and update accounts systems for postponed import VAT accounting.
• Distinguish between non-EU and EU imports for the transitional period.
• Understand the phased import rules for the first 6 months of 2021 and comply in time.
• Appoint a customs agent or freight forwarder to manage EU imports, confirm they are locally established in GB (or Northern Ireland), and in what capacity they will act for you.
• Identify low value consignments (i.e., under £135) which will be subject to new import rules, and the exceptions.
• Review the need for specialized customs procedures (e.g., duty deferment, temporary admission, ATA Carnet, inward processing relief, authorised use, customs warehouse, temporary storage facility etc.) and whether the business requires authorisation or can use another party’s authorisation.
• Identify requirements for imports involving animals, plants, food, agricultural products, drugs, chemicals and waste, and any import licensing, and import inspections implications.
• Consider any restructuring needs of your business in GB, Northern Ireland, or across the EU.
• Review contractual terms to determine who is responsible for import clearance, as this could be an issue for non-VAT registered suppliers who are contracted to import the goods into the UK, as well as VAT recovery of import VAT payable.

Postponed Import VAT Accounting will generally apply to all imports i.e., from non-EU and EU countries from 1 January 2021. It will be compulsory in certain cases but not all. Please contact your usual VAT contact for more information.

Please note that these rules are subject to change.