Brexit and VAT pt1: mini one stop shops, tourism and VAT refunds

In the first of a two-part series, Croner-i writer Sarah Kay reviews a number of the less well publicised Brexit consequences for UK businesses trading in the EU, including the impact of mini one stop shops, tax free shopping for tourists and EU VAT refunds

With only just over two months remaining until the transition period ends and the UK fully leaves the EU, preparations for Brexit are becoming ever more important.

At the time of writing it appears that a no-deal Brexit is a likely scenario. But the intense focus on whether or not the UK can agree a trade deal with the EU has, perhaps, distracted many from the fact that, even if a favourable trade deal is reached, the UK’s relationship with the EU will change fundamentally on 31 December.

Certainly, in terms of VAT, this will have far reaching consequences for businesses which trade with the EU and in many cases the outcome for business is the same or similar, deal or no deal.

Although many businesses are unaware of the finer procedural details, it is relatively well known that after 31 December, all goods entering and leaving the UK will be imports and exports. Goods imported into the UK will be subject to the same rules whether they come from EU or non-EU countries, and (unless they are entered into transit) goods exported from the UK will have to be imported into the EU when they arrive at their destination.

However, the consequences of Brexit go beyond imports and exports, so this article will take a brief look at other issues which will arise when the transition period ends. There are links to enable subscribers to Croner-i’s In-Depth indirect tax commentary to access more detailed information.

  1. Mini One Stop Shop (MOSS)

When supplied to consumers (rather than businesses), digital services are subject to VAT in the customer’s EU member state. The MOSS scheme is a simplified VAT registration which enables suppliers of digital services to declare VAT due on sales to consumers in every member state on a single return.

Currently UK businesses use the Union MOSS Scheme, ie, they register with HMRC and file their return via the Government Gateway. HMRC then transfers the VAT collected to the relevant EU tax authority. Similarly, the various EU tax authorities transfer UK VAT they have collected from MOSS users in their country to HMRC.

Post-transition, UK businesses will not be able to file MOSS returns with HMRC. These businesses will need to either:

• Register in an EU member state of their choice to file a non-Union MOSS return; or

• Register for VAT in every member state where they have customers - the registration threshold for non-established businesses is zero.

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  1. Tax-free shopping for tourists

For many years it has been possible for retailers to sell goods to visitors from outside the EU VAT-free through the ‘retail export scheme’ and at popular holiday destinations many retailers promote ‘tax-free shopping for tourists’.

The government has announced that this scheme will cease on 31 December 2020.

Some businesses and trade organisations are pressuring the government to reverse its decision, so a change of policy is a possibility. Retailers who use the scheme must keep monitoring the situation for developments, as well as ensuring that their staff are aware of the change; shop staff may well have to deal with queries from overseas visitors who do not realise that their shopping is 20% more expensive than they had expected.

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  1. EU VAT Refunds

EU businesses which incur VAT in another EU member state are able to reclaim this VAT, subject to various conditions. Using an electronic refund system, claims are submitted to the businesses’ local tax authority which reviews the claim and forwards it to the relevant member state to be processed.

Until 31 December 2020 UK businesses are entitled to reclaim VAT incurred in other EU member states. They can use the electronic refund system to submit refund claims for this VAT to HMRC until 11pm on 31 March 2021. After this date access to the electronic system will be turned off.

Claims for VAT incurred in 2020 must be submitted by 30 September 2021. It will still be possible to submit claims after 31 March 2021, but the paper forms used by non-EU claimants must be used.

Non-EU businesses incurring VAT in the EU can submit claims to recover this, but the claims process is far more bureaucratic than the electronic refund system used by EU claimants. Claims are made using paper forms completed in an official language of the relevant country and these are sent, accompanied by various documents, to the tax authority which will make the repayment.

UK businesses which incur EU VAT after 31 December 2020 will have to use this paper-based system to make claims. Claimants must familiarise themselves with the deadlines (which are different for EU and non-EU claimants) and be aware that claims by non-EU businesses tend to take longer than those by EU businesses to process.

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Further reading:

Brexit and VAT pt2: tour operators, online sales and overseas marketplaces


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About the author

Sarah Kay is a tax writer at Croner-i

Sarah Kay |CTA, Tax writer, Croner-i

Sarah Kay BSc (Hons), PhD, CTA is a tax writer at Croner-I, where she specialises in writing VAT commentary. She trained with Ernst ...

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