How to account for VAT after Brexit
Value Added Tax (VAT) remains one the most complicated areas of tax but most people in business understand the basics and are used to completing their normal VAT Returns. Brexit, however has created some small issues for VAT registered businesses who trade with the EU. If these are left unchecked they can cause errors in VAT Returns.
From 1st January 2021 the way we complete the VAT Return in the UK changed. The most important change was how we account for VAT when it comes to Great Britain (GB) trading with the European Union (EU). For many businesses this would have been the first time you would have had to look at VAT from an import/export point of view.
In our previous blog on this subject, we talked you through the mechanics of how VAT will work for us when trading with the EU. If you need to familiarise yourself, please click here brexit-import-export-vat-returns
Postponed VAT Accounting (PVA)
In the blog we mention Postponed VAT Accounting (PVA) which allowed businesses to account for input VAT on the VAT Return rather than paying it at the port of entry and then reclaiming it. The idea was to offer some flexibility initially so that cash-flow was not impacted. It was anticipated the scheme would last for six months but it is now a permanent measure.
This means that if you are using the scheme, you will not pay the input VAT but will just account for it in your VAT Return. You will need copies of your monthly postponed import VAT statement (MPIVS) to do this, obtainable via your government gateway account.
If you have opted out of using PVA, you will need to obtain a form C79 monthly and make the entries in your accounting software.
Choosing the correct VAT code in your accounting software if you trade with EU.
Over the last five months the most common question we have been asked is what VAT code should be used when entering an invoice into a software such as QuickBooks, Xero, and SAGE. Each software house has released information detailing what codes should be used in their software. You can easily obtain these by visiting their websites but if not please call us and we will assist you.
QuickBooks for example have added the PVA Import 0% for zero rated goods and PVA Import 20% for standard rated good, for business to business (B2B) transactions.
Supply of Goods after Brexit
The supply of goods leaving the UK are all zero-rated exports. For example, if you are supplying goods to a business in France, then when raising your sales invoice in the software, you would use 0% Z.
When purchasing goods from the EU business you would enter the purchase invoice in the system using PVA Import 0% or PVA Import 20%.
In QuickBooks, the way to change the VAT code:
- Go to and VAT
- select Edit VAT
- Select , and on the smaller gear icon select .
- Switch it on using the toggle.
Supply of Services after Brexit
There are limited changes relating to supply of services to EU business. For supply of service, if the place of supply is the UK, then this is outside the scope of VAT. If the place of supply is the country where the consumer is based, then you may need to register in that country.
If you have received a service from an EU supplier, you should not have been charged VAT but you will need to apply reverse charge mechanism.
Use QuickBooks codes 20% RC for importing services for anywhere outside the UK and 0% RC for exporting services anywhere outside the UK.
How will the VAT Return look different after Brexit?
Despite the changes the UK VAT Return retains its nine boxes. There are three main changes here:
Acquisitions from the EU
Any purchases now from the EU are considered imports and therefore you will account for VAT in box 1 and box 4 of the VAT Return. These include your reverse charge services.
Dispatches to the EU
As with purchases, any sales to the EU are now exports and therefore are only subject to VAT when they arrive at their destination.
Box 8 & 9 of the VAT Return
No data necessary unless the business is based on Northern Ireland.
If you are using the correct codes in your software, then the codes you apply will ensure the correct entries are made in your VAT Return.
What if I am selling directly to consumers in EU after Brexit
This the area that has caught out a few sellers and you may well have seen the headlines in the papers. As a seller you need to give careful thought as to who will pay the import VAT in the country of destination.
If you are expecting your consumers do this then they will have to make a payment to the authorities (via the courier company), and you should clearly communicate this beforehand. Alternatively, you will need to register in the EU country and then consequently charge the VAT to your consumer in that country. However, look at the changes under IOSS (see below)
What is the new Import One-Stop-Shop (IOSS)
This new system comes into effect from 1st July 2021.
UK suppliers can use the IOSS system where the consignment value in under €150 (£135) and so a VAT equivalent of the destination country is charged at the point of sale.
As a UK seller you will then report the VAT using a single IOSS return and so avoid the need to having to register in every single EU country.
For further information and to register press the link here IOSS. We would strongly recommend that you read this if you are selling directly to consumers in the EU.
This blog covers the main concerns if you are completing your own VAT Returns and is not meant to replace any specific advice that you may need to seek from us when it comes to your business and VAT. If you need specific VAT advice please get in touch. Amy is our in-house VAT Expert and her email address is firstname.lastname@example.org.