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Find out about the VAT treatment of transactions or movements of goods which span the end of the transition period.

1. Overview

This notice provides an outline of the VAT treatment of transactions or movements of goods which span the end of the transition period. This is a public notice for the purpose of regulation 11 of the Value Added Tax (Miscellaneous Amendments, Revocation and Transitional Provisions) (EU Exit) Regulations 2019 (SI 2019/513) which allows HM Revenue and Customs (HMRC) to make provisions to deal with specific transitional issues connected to the UK’s exit from the EU. Parts of the notice have force of law and will be indicated in each case.

 

This notice, in the main applies to movements of goods between the EU and Great Britain. This is because, under the Northern Ireland Protocol, the current rules for movements between the UK and the EU will continue in relation to movements between Northern Ireland and the EU.

The general transitional provisions in relation to EU Exit and VAT are contained in the:

For the purpose of this notice

‘Implementation period (IP) completion day’ has the same meaning as ‘end of the transition period’. The terms are set out in section 39(1) of the European Union (Withdrawal Agreement) Act 2020 of ‘IP completion day’ means 11pm on 31 December 2020.

 

2. Goods

 

2.1 Introduction

Goods arriving into Great Britain on or after the end of the transition period from an EU member state will be subject to UK customs procedures and import duties (including import VAT) in the same way as goods imported from the rest of the world. This section deals with various scenarios where the supply or movement of those goods straddle the end of the transition period.

 

2.2 The general treatment of acquisitions

If the movement of goods from an EU supplier to a Great Britain VAT-registered business starts before the end of the transition period, but the goods arrive in Great Britain after the transition period, that transaction will be an acquisition and acquisition VAT should be accounted for where applicable.

 

2.3 Import of goods on which acquisition VAT has already been paid before the end of the transition period

If a business has accounted for VAT on the acquisition of goods before the end of the transition period because the supplier has raised an invoice, but those goods begin their movement to Great Britain after the end of the transition period, those goods could be subject to both acquisition VAT and import VAT.

 

When this happens, the Great Britain business is required to account for import VAT on their return by using the postponed accounting scheme. They will be able to reduce the amount of import VAT by the amount of acquisition VAT for which they are liable. In cases where the acquisition VAT is equal to or greater than the import VAT, the import VAT entry is reduced to nil.

 

Those businesses whose circumstances mean that they cannot use the postponed accounting scheme, should use the alternative method in section 2.4.

 

2.4 Import of goods on which acquisition VAT has already been paid before the end of the transition period for those who cannot use the postponed accounting scheme

This provision applies in the same circumstances as section 2.3, where a business has accounted for VAT on the acquisition of goods before the end of the transition period because the supplier has raised an invoice, but those goods begin their movement to Great Britain after the end of the transition period and so those goods could be subject to both acquisition VAT and import VAT. However, if the transaction does not meet the conditions for using the postponed accounting scheme, the transitional provision as set out in section 2.3 cannot apply.

 

Those affected businesses can instead, apply a different method. This alternate method has force of law.

 

If the Great Britain business cannot use the postponed accounting scheme, it will have to pay import VAT when the goods arrive in the UK which the Great Britain business will be able to deduct as input tax (subject to the normal rules) on their VAT return. At the time they deduct the import VAT, the Great Britain business will be able to also deduct as input tax an amount of VAT equivalent to their liability for the acquisition VAT for which they have accounted.

This section has force of law.

  1. This measure applies where a Great Britain business receives a supply of goods from a business in an EU member state that straddles the end of the transition period and that supply is subject to both acquisition VAT, because the time of acquisition occurred before the end of the transition period, and import VAT, as the goods were imported after the end of the transition period. Where that business, because it does not meet the conditions for postponed accounting, is unable to apply the relevant transitional provision in Part 4 of the Value Added Tax (Miscellaneous Amendments, Northern Ireland Protocol and Savings and Transitional Provisions) (EU Exit) Regulations 2020 to adjust the amount of import VAT to reflect any acquisition VAT for which the business is also liable, the following rules apply.
  2. The person who is liable for both acquisition VAT and for import VAT in the circumstances mentioned in the paragraph (1):
    (a) must account for the acquisition VAT in the VAT return in which that person is normally required to account for that VAT
    (b) may, to the extent that the person is entitled to do so under section 26 of the Value Added Tax Act 1994, deduct as input tax
    (i) the VAT brought to account in respect of the acquisition of the goods, and
    (ii) the VAT paid as import VAT on the importation of the goods, and
    (c) may make a further deduction in the VAT return equivalent to:
    (i) the amount of the acquisition VAT accounted for under paragraph (a) less
    (ii) the amount deducted as input VAT in respect of the acquisition VAT under paragraph (b)
  3. The further deduction mentioned in paragraph (2)(c) is to be entered in the VAT return in the same box that is designated for input tax entries.
  4. In cases where a person is entitled, under section 26 of the Value Added Tax Act 1994, to deduction of the full amount of the acquisition VAT brought to account in respect of the acquisition VAT mentioned in paragraph (2)(a), the further deduction mentioned in paragraph (2)(c) is nil.

2.5 Goods on which acquisition VAT is not due before the end of the transition period

If goods sent by an EU business have arrived in Great Britain before the end of the transition period but the time of acquisition does not occur until after the end of the transition period, acquisition VAT will still be due as though the acquisition took place before the end of the transition period.

 

2.6 Supplies of installed goods where goods enter Great Britain before the end of the transition period, but time of acquisition does not occur until after the end of the transition period

Where the goods involved in a supply of installed goods have moved to Great Britain before the end of the transition period but the time of acquisition takes place after the end of the transition period, the whole supply is treated as an acquisition. It does not matter if the installation element took place before or after the end of the transition period.

 

2.7 Supplies of installed goods where goods enter Great Britain before and after the end of transition period, but time of acquisition does not occur until after end of transition period and a time of acquisition occurs before the end of the transition period

It is possible in a single supply of installed goods for there to be more than one time of acquisition, for example, an invoice for a deposit and then a final invoice on completion and the goods may arrive in the UK in more than one shipment.

 

This supply will be a single supply of an acquisition because goods arrived in Great Britain before the end of the transition period (see section 2.5).

 

However, any goods that arrive in Great Britain where the movement begins after the end of the transition period will be an import. If a business has accounted for VAT on the acquisition of goods before the end of the transition period because the supplier has raised an invoice, but those goods begin their movement to Great Britain after the end of the transition period, those goods could be subject to both acquisition VAT and import VAT.

 

When this happens, the Great Britain business is required to account for import VAT on their return by using the postponed accounting scheme. They will be able to reduce the amount of import VAT by the amount of acquisition VAT for which they are liable. In cases where the acquisition VAT is equal to or greater than the import VAT, the import VAT entry is reduced to nil. If the Great Britain business is ineligible to apply the postponed accounting scheme, they can use the alternate method as set out in section 2.4.

 

2.8 Import of goods on which UK VAT has been accounted for under the distance selling rules

This section applies to EU based businesses that are currently registered for UK VAT under the UK distance selling rules.

If an EU based business has declared UK VAT on goods under the distance selling rules before the end of the transition period but the goods are sent to the Great Britain after the end of the transition period, those goods will be an import and subject to import VAT. If the relevant goods are of a value exceeding £135 (or do not fall within the provisions for goods supplied from overseas), and those goods are dispatched after the end of the transition period, you can make an adjustment to VAT already accounted for, providing all of the following conditions are met:

Any adjustment made in this way can be made on a VAT return for a period ending no later than 6 months after the date of importation of the goods. You should keep a separate record to identify adjustments.

 

2.9 Import of goods – returned goods relief (RGR)

This section applies to individuals and businesses importing goods into Great Britain after the end of the transition period that were transported from the UK to the EU or exported from the EU before the end of the transition period.

Eligible goods transported from Great Britain to the EU before the end of the transition period, and which remain located in the EU after the end of the transition period, or goods exported from the EU before the end of the transition period which remain located outside the EU after the end of the transition period, are eligible for VAT returned goods relief provided that:

2.10 Goods in a warehousing regime

If goods that enter a warehousing regime in Great Britain before the end of the transition period are removed after the end of the transition period, the VAT treatment is determined by the rules that apply when the goods exit the warehousing regime.

 

2.11 Goods leaving Great Britain

If the movement of goods from Great Britain to a VAT registered business in an EU member state starts before the end of the transition period, but the goods do not arrive until after the end of the transition period, the treatment will be a dispatch. If the movement of goods begins after the end of the transition period the treatment will be an export.

 

2.12 Retail Export Scheme (RES)

Retail Export Scheme will no longer apply in Great Britain after the end of the transition period. However, claims can continue to be made for goods purchased before the end of the transition period. Existing rules will continue to apply in relation to those goods.

 

2.13 Margin schemes

Second hand goods purchased in Great Britain before the end of the transition period for resale in Northern Ireland, will be eligible for inclusion in the margin scheme in Northern Ireland.

 

3. Fulfilment Houses

3.1 Background

This section applies to Great Britain fulfilment houses that, before the end of the transition period only stored goods imported into Great Britain from the EU.

 

Since April 2018 UK fulfilment houses that store imported goods belonging to businesses situated outside the EU have been required to apply and gain approval from HMRC to operate such a business. Otherwise, from 1 April 2019, they can be liable to criminal or civil sanctions, together with the forfeiture of any goods being stored. This is referred to as the Fulfilment House Due Diligence Scheme (FHDDS).

At the end of the transition period, the FHDDS will also apply to Great Britain fulfilment houses that store goods from anywhere outside the UK which are owned by non-UK businesses. This will mean that those Great Britain fulfilment houses that previously only stored goods from EU member states will now have to register for the FHDDS.

 

Fulfilment houses based in Northern Ireland are not affected by this. They still have to register for FHDDS only if they store goods imported from outside the EU which are owned by businesses situated outside the UK and EU. Goods stored in an Northern Ireland fulfilment house that are supplied from Great Britain are not subject to FHDDS and vice versa.

 

3.2 Impact on EU businesses

Without suitable transitional arrangements in place, a Great Britain fulfilment house that is not registered under the FHDDS because all of the goods stored are owned by EU businesses would be liable for criminal and civil sanctions from the end of the Transition Period. Suitable transitional arrangements have been put in place to provide affected businesses time to either:

3.3 Transitional arrangements

These transitional arrangements only apply to Great Britain fulfilment houses that either:

3.3.1 Application of transitional arrangements

If you’re a fulfilment house and meet either of the conditions in section 3.3, the transitional arrangements apply to you where your fulfilment house business:

The transitional arrangements do not apply if a fulfilment house business does not qualify or fails to meet the conditions and normal FHDDS rules apply.

 

3.4 Registration for the FHDDS

How to register for the Fulfilment House Due Diligence Scheme.

 

4. Services

4.1 General

Although the main rules that determine where supplies of services are taxed have not changed as a result of the end of the transition period, some of the consequential legislative changes have resulted in the place of supply or the liability of supplies changing in limited circumstances (for example, certain professional services to non-business customers). This could lead to problems of double taxation with services being taxed at both the actual tax point and the basic tax point.

For those services affected, where the 2 tax points have differing treatments the basic tax point will apply.

 

4.2 Tour Operators’ Margin Scheme (TOMS)

4.2.1 Transitional arrangements

For designated travel services that span the end of the transition period (for example a package holiday), the time of supply will be determined by the date of departure or first occupation of accommodation (whichever comes first). If the time of supply is before the end of the transition period, the whole of the designated travel service will be treated as taking place before the end of the transition period irrespective of how much of it takes place after the end of the transition period. No apportionment will be permitted.

 

4.2.2 Special rules for businesses that account for their margin based upon receipt of payment from their customers

The majority of tour operators and others liable to account for VAT under the Tour Operators Margin Scheme (TOMS) do so by accounting for the margin at the point of departure. However, a small number account for their margin based upon receipt of payment from their customers.

 

If you use the payment tax point for your TOMS calculation you can, if you wish, adjust for VAT declared before the end of the transition period on designated travel services that will be enjoyed in an EU member state and take place wholly on or after the end of the transition period.

 

You can treat the time of supply for the relevant designated services as the date of departure or first occupation of accommodation (whichever comes first) and can recover any VAT previously declared by any fair and reasonable method within the current annual calculation period. This transitional arrangement has force of law.

 

The next 3 paragraphs have force of law.

 

Regulation 9 of the Value Added Tax (Miscellaneous Amendments, Revocation and Transitional Provisions) (EU Exit) Regulations 2019 does not apply to a designated travel service.

 

The Value Added Tax (Tour Operators) (Amendment) (EU Exit) Regulations 2019 will not apply to a designated travel service where the time of supply as determined by article 4(2)(a) of the Value Added Tax (Tour Operators) Order 1987 is before the end of the transition period.

Where the time of supply of a designated travel service would occur before the end of the transition period determined under Article 4(2)(b) of the Value Added Tax (Tour Operators) Order 1987, but would occur on or after the end of the transition period if determined by Article 4(2)(a) of that Order, the time of supply may be treated as taking place as if Article 4(2)(a) applied. Any VAT overpaid may be recovered by any fair and reasonable method within the current annual calculation period.

 

5. Call-off stock

5.1 General

Call-off stock refers to goods transported by a supplier from a state of origin to a state of destination. At the time of the transport of goods, the supplier already knows the identity of the person to whom these goods will be supplied (called-off) at a later stage and after they have arrived in the state of destination. Where that stock falls under the EU simplification for call-off stock, the supplier does not need to register for VAT in the member state of destination, account for acquisition VAT and then make a domestic supply. Instead, the customer in the member state of origin accounts for acquisition tax once the goods are ‘called-off’.

 

This transitional rules preserves the pre-end of transaction period rules for call-off stock where that stock is already in Great Britain at the end of the transition period. If, after a period of 12 months after the goods arrival in Great Britain, the goods have not been called off to either the original customer or another customers, the supplier must register for VAT in the UK and account for acquisition VAT on them. Any subsequent supply of the goods will be a domestic UK supply if sold to a Great Britain business.

 

6. Financial Services

6.1 VAT treatment on certain supplies of financial services

After the end of the transition period, the Specified Supplies Order will extend the exempt with refund VAT treatment of certain supplies of financial services (specified supplies) to customers in the EU.

Input tax incurred after the end of the transition period that is used to make certain financial supplies to customers belonging in the EU (specified supplies) after the end of the transition period will be recoverable.

 

Input tax incurred before the end of the transition period that is used exclusively to make exempt financial supplies to customers belonging in the EU before the end of the transition period cannot be recovered. There is no provision under UK or EU law to allow a right of recovery for these supplies.

 

Input tax incurred before the end of the transition period that is used to make specified supplies after the end of the transition period, may be recoverable as part of a partial exemption longer period adjustment relating to a tax year ending after the end of the transition period. For more information read section Re-attribution of input tax incurred before 11pm 31 December 2020 as part of the longer period adjustment ending after 11pm 31 December 2020 within Transitional guidance for VAT specified supplies.

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