Brexit VAT changes | A guide for small businesses

There are new trade rules and taxes that small businesses should be aware of now the Brexit transition period has come to an end.

As of 1 January 2021, the UK government changed how it collects VAT and other import duties on all overseas goods. If you rely on European (and non-European) trade as part of your business, read our Brexit guide for small businesses to avoid an unexpected tax bill.

How will Brexit affect businesses?

The UK-EU trade deal means businesses can no longer trade freely under the previous EU VAT and customs agreements, and new taxes and rules apply.

This might affect your business if you:

• import/export goods or services to the EU

• send items through the post

• sell online goods that cost £135 and under

Import charges in the UK – how have they changed?

The UK’s new import charges are now different from EU tariffs, and they vary depending on the goods you’re importing. You can look up these charges on gov.uk.

New VAT rules

If you import goods from the EU, talk to your suppliers and make sure they’re set up correctly for UK tax. Under the new rules, EU sellers should be charging UK VAT at the point of sale, rather than HMRC collecting tax when the goods are imported into the country.

This means that EU businesses wanting to trade with the UK need to register with HMRC. However, some businesses are choosing to avoid the extra admin, which is causing some surprise tax bills when the delivery arrives.

To minimise any issues, speak to your suppliers before you place an order to check they’re registered and are charging UK VAT.

How much tax you need to pay depends on the cost of the order. If this isn’t included in the sale price, it’ll be due on delivery.

• for goods up to £135 – the VAT rate can be between 0 and 20 per cent depending on the item

• for goods over £135 – these are subject to a 0 to 25 per cent import duty, plus UK VAT (usually 20 per cent), which again should be charged when you’re buying the item

The good news is you can pass the VAT costs on to the end user (your customer) by way of reverse charge when you buy from a seller in the EU. This only applies to goods you’re buying to then sell on in the UK, rather than to equipment or items you need to run your business for example.

To use the VAT reverse charge:

• you need to be VAT registered

• the EU company you’re buying from needs to be registered with HMRC

• you need to tell the EU seller your VAT number when you buy the goods

Keeping an open conversation with your suppliers will help ease the transition to these new rules and make sure you’re both on the same page.

Additional paperwork and courier fees

If your business is used to trading with Europe, you’ll need to be aware of additional paperwork and fees when importing and exporting goods:

EORI number – if you move goods between Great Britain and the EU you’ll need an EORI number that starts with GB. If you export or import goods to Northern Ireland you’ll need a number that starts with XI. You can apply for an EORI number with HMRC online.

Courier fees – some couriers are charging an additional fee to those buying from EU retailers to cover the additional admin efforts when VAT isn’t applied by the seller. Royal Mail is charging £8, UPS is charging £11.50, and Mastercard is increasing fees for credit and debit cards.

Licences and certificates – there are rules around importing certain goods where you’ll need a certificate, for example a £150 health certificate for food deliveries.

Sending items through the post – you’ll need to complete a customs declaration form if you’re sending goods to customers outside the UK.

Delaying customs duty on imports

To help businesses adjust to the changes, the government has said you can delay customs payments until 30 June 2021. But to help smooth the process, the government recommends you hire someone to help.

If you need to regularly import goods as part of your business, you can choose to pay your customs charges monthly. You can find out more about applying for a duty deferment account on the government website.

And what about customs duty on exports?

As well as VAT, you’ll also need to pay customs duty on items you send outside of the UK. Your courier company will be able to send you details when you arrange the delivery.

How to register for VAT

You can register for VAT in the UK online via the government website. Find more information on when and how to register a company for VAT in our guide for small businesses.

If you’re exporting goods to countries within the EU, you may need to register for VAT in every country you export to. You find out more information on the European Commission website.

As tax and tariffs are complicated, please use this as a guide only and speak to a professional about your individual circumstances.

How is your business affected? Let us know in the comments.