Brexit VAT Myths Debunked

It’s been six months since the UK left the EU and we want to make sure you’re keeping up to date with the latest rules and regulations. There have been a lot of myths floating around, so it’s time to debunk them!

MYTH: Postponed VAT Accounting (PVA) ended on 30th June 2021

This is false! PVA is not a temporary facility and will be here to stay. The payment of VAT is deferred when goods arrive into the UK, instead being declared as a reverse charge entry on the importer’s tax return.

MYTH: The reverse charge for imported goods with PVA always produces a nil payment outcome on a VAT return

As far as the VAT amount is concerned, Box 1 and Box 4 are relevant for the reverse charge for imported goods, based on the VAT rate applicable under UK VAT law for the specific goods. For example, 5% for smoking cessation products or 20% for computers.

If the goods are only used for the taxable supplies of a business, they will cancel each other out. For example, output tax = input tax.

The Box 4 input tax entry must be reduced for any private or non-business use and if they are used for any exempt activities. If an input tax reduction is necessary, it produces a net VAT payment to HMRC.

MYTH: A business must register online with HMRC before the goods arrive in the country to benefit from PVA

A GB Economic Operators Registration and Identification number, issued by HMRC, is required for the importer to use PVA. It is an election process, as opposed to a registration. It is elected on the customs declaration form each time goods arrive by ticking payment option G.

MYTH: Exporting goods are always zero-rated for VAT purposes, so I don’t need to worry about VAT

Whilst the sale of goods from GB to anywhere else outside of the UK are now zero-rated as far as UK VAT is concerned, VAT has not gone away. You need to consider indirect tax and duty issues when the goods arrive in the other country.

Your best option is to get your customer to act as the importer, otherwise you might need to register for VAT in that country if it is importing and selling goods there.

MYTH: VAT rules for services post-Brexit have had no changes

Some rules are unchanged, such as the general B2B and B2C place of supply rules which are unchanged since 1st January 2021. The VAT treatment depends on the location of the customer for B2B sales of services and where the supplier is located for B2C sales.

However, there is a list of professional services which are no longer subject to UK VAT if the B2C customer is outside of the UK. Before Brexit, this was only relevant if the customer was outside the EU. Services include accountancy, consultancy, engineering and legal services amongst others.

You can find the services listed in VAT Notice 741A, section 12, which you can find here.

We hope that this myth buster will help to keep you in the loop with all things VAT related when it comes