Wigs for teddy bears are subject to duty, but in a recent Upper Tribunal case it was ruled that ‘realistic” hearts used for a Build-A-Bear toy are duty free.
Category Archives: International
New rules of origin for goods
Brexit update
HMRC has published updated, detailed guidance for the rules of origin for goods moving between the UK and EU.
It is important to understand the impact of the rules and how they impact a business. Specifically, to ensure advantage is taken of zero tariffs when dealing with cross-border goods. The rules apply to both imports and exports and clearly, incurring unnecessary tariffs is to be avoided if possible.
Background
The UK moved to trading based on a new Free Trade Agreement (FTA) – the Trade and Cooperation Agreement (TCA) between the UK and the EU post-Brexit.
To export tariff-free under the TCA, goods must meet the UK-EU preferential rules of origin. This means that there must be a qualifying level of processing in the country of export to access zero tariffs. This applies to EU origin goods imported and moving through the UK from a Member State to another EU Member State, as well as goods imported from the Rest of World.
These rules are set out in the TCA and determine the origin of goods based on where the products or materials (or inputs) used in their production come from. Their purpose is to ensure that preferential tariffs are only given to goods that originate in the UK or EU and not from third countries.
VAT: Postponed Accounting available for Section 33 bodies
HMRC has announced that bodies covered by The VAT Act 1994, Section 33 such as; Local Authorities, Academies, Transport Authorities and the Police can use Postponed Accounting for imports.
Normally, a body cannot account for import VAT on its VAT return if it import goods that it knows will be used solely for non-business purposes. However, this no longer applies to a body that is eligible to reclaim import VAT through a VAT refund scheme (Section 33). Section 33 entities when completing its customs declaration, should select the “making an immediate payment or using a duty deferment account” option.
Section 33 bodies
These entities have special VAT treatment which is effectively the opposite of normal VAT rules. To avoid a cost to the taxpayer, these entities are permitted to specifically recover input tax that relates to non-business activities. Nobody said that VAT was straightforward and in these cases, the VAT rules are inverted!
We act for many Local Authorities and Academies. Please contact us should you, or your clients, have any queries on this matter.
New EC VAT rate database
The European Commission has issued a new tool which enables businesses to check on the VAT rate for specific supplies. It is based on commodity codes but there are drop down menus for detailed descriptions. The tool covers both goods and services. There are both a simple and advanced search functions and the database also covers other taxes:
- Personal Income Tax
- Corporate Tax
- Other Direct Taxes
- Alcohol
- Energy Products
- Real Estate
- Tobacco
- Social Security Contributions
VAT: Treatment of transactions involving cryptoassets. New guidance
Further to my articles on cryptoassets and Bitcoin HMRC have published an updated Cryptoassets Manual CRYPTO40000 which sets out its interpretation of trading in cryptocurrencies.
It covers:
- economic activity
- supplies of tokens
- exchanges
- exemption
- value
- case law
- betting and gaming
- other taxes; CGT, CT, CTCG, Income Tax, NIC and Stamp Taxes
Any business dealing in any way with cryptoassets needs to understand the VAT and other tax implications of services to, and by it.
VAT: Certificate of Status
Claiming VAT in another country
If a UK business wishes to claim VAT incurred in a country outside the UK it will need a Certificate of Status (a “Certificate of Status of Taxable Person”). This certificate, known as a VAT66A, may be obtained from HMRC and certifies that an entity is in business (engaged in an economic activity).
Changes from 8 March 2021
HMRC has announced HMRC changes to the way it issues VAT66As to UK businesses. From 8 March 2021, HMRC will send the certificate by email. A small, but helpful nod to 21st Century technology. A business must first complete an informed consent form before HMRC will correspond by email. The VAT66A only lasts for 12 months, so it is prudent to set a reminder to renew.
However, and there is usually a however, some countries require a “wet stamped” document to support a claim, in which case, HMRC will continue to issue these by post. It makes sense to check what actual documentation each country in which a claim is made requires, as it does vary. It is usually also necessary to make a claim in the language of the country in which the VAT was incurred.
Who can request a certificate of status?
The authorised persons (director or secretary) of the businesses which is registered in the UK for VAT, or an agent which has a letter of authority from a UK VAT-registered business – form 64-8 to act on its behalf.
Requesting a certificate
Send an email to vat66@hmrc.gov.uk with “VAT certificate of status request” in the subject line and the following information:
- business name
- VAT registration number
- business address
- applicant’s name and role in the business
- contact telephone number
- the country (or countries) where the VAT refund claim is being made
- number of certificates required (one for each country in which a claim is to be made)
- if the certificate should be sent to you by post or by email
Agent application
Write ‘VAT certificate of status – agent request’ in the subject line of the email, and provide the following information:
- agent’s name
- agent’s business address
- the name of the business to which the certificate relates
- an attachment with a letter of authority from an authorised signatory of the business you are requesting a certificate for – a list of authorised signatories here; VAT Notice 742A
- VAT registration number of the business
- business address
- the country (or countries) where the VAT refund claim is being made
- the number of certificates required
- if the certificate should be sent by post or by email to you or the business you are requesting a certificate for
HMRC say that a certificate will be sent within 15 working days of an application.
Oh for the days of a single electronic application to HMRC which covered all 27 Member States…
VAT: Postponed Accounting
VAT Basics
A quick look at Postponed Accounting (PA) and what it means for a business after Brexit
Pre-Brexit (if one remembers such halcyon days) acquisitions from other Member States crossed the UK border without any formalities as there was free movement of goods within all of the EU.
Now that GB is a third country, it is unable to take advantage of the benefits of a single market, so acquisitions become imports and are required to be declared when imported. However, gov.uk has announced he return of PA in an attempt to simplify matters.
PA
PA is accounting for import VAT on a VAT return means a business declares and recovers import VAT on the same return, rather than having to pay it upfront and recover it later. This means neutral cash flow; which is to be welcomed.
The normal rules about what VAT can be reclaimed as input tax will apply.
PA also has the advantage that imported goods are not delayed at the entry port while VAT paperwork and payment is completed. Of course, as experience has demonstrated; there may be other reasons for delays to imports and exports.
Who can use PA?
From 1 January 2021, if a business is registered for VAT in the UK, it will be able to account for import VAT on its return for goods it imports into:
- GB (England, Scotland and Wales) from anywhere outside the UK
- Northern Ireland from outside the UK and EU
There will be no changes to the treatment of VAT for the movement of goods between Northern Ireland and the EU.
A business does not need approval to account for import VAT on its returns.
How does PA work practically?
VAT is payable on imports of over £135 arriving into the GB from any country in the world, which now includes the EU. Practically, PA is similar to the current Reverse Charge. Output and input VAT is accounted for on the same VAT return.
When completing a customs declaration a business may choose how to account for VAT on its return.
If the Customs Handling of Import and Export Freight (CHIEF) system is used:
On the declaration, the following needs to be entered:
- the EORI number starting with ‘GB’ which includes the VAT registration number into box 8, or, if applicable, the VAT registration number in box 44h
- ‘G’ as the method of payment in Box 47e
If the Customs Declaration Service is used:
The VAT registration is entered number at header level in data element 3/40.
Returns
- Box 1 – Include the VAT due in this period on imports accounted for via PA.
- Box 4 – Include the VAT reclaimed in this period on imports accounted via PA.
- Box 7 – Include the total value of all imports of goods included on your online monthly statement, excluding any VAT.
Using someone to import goods on your behalf
If a business uses a third party to import goods on its behalf (eg; a freight forwarder, customs agent, or fast parcel operator) it will need to inform them how it wants to account for VAT on those imports, so that they can complete the customs declaration correctly.
Alternatives
The use of PA is optional. The alternative is to pay VAT on goods when they enter the UK. This means the use of the “usual” C79 certificates sent by HMRC on which input tax may be reclaimed (rather than any other documentation, eg; invoices).
Northern Ireland
Goods moved to NI from the EU are not impots (NI remains part of the EU, so the old rules on acquisitions still apply and no import VAT is due).
Customs Duty
Alongside additional border formalities, Customs Duties may be payable on certain goods. This Duty is not reclaimable like VAT. Most of the complexities of Customs Duty relate to the rules of origin.
Commentary
PA is a relief for businesses importing from the EU. It is a simple system and will be familiar to any business which applies Reverse Charges. With all the varying changes applying post-Brexit, this is one area which should not affect a business importing from the EU in terms of port delays or negative cash flow. To date, there is no evidence on how well the system is working, but anecdotally, I understand that this part of Brexit changes has not thrown up any issues, unlike other problems which have been widely reported. I stand to be corrected though.
VAT: New gov.uk EORI tool
Gov.uk has provided a new tool to check a business’ EORI number. (This used to be an EC resource now not available due to Brexit).
A guide to EORI here
A business may need to demonstrate to HMRC that it has carried out proper due diligence in certain cases.
Contact
If you have queries, or would like to obtain specific EORI advice, contact the HMRC EORI team using the online form
Access
Who has access to an EORI number?
The general public can access limited data, When a business is notified of its EORI number, it will be asked whether it objects to this data being published on the site.
VAT: New HMRC guidance for using international post and merchandise in baggage
HMRC has published two new sets of guidance for international post users and importing merchandise in baggage. The changes are mainly due to Brexit.
International post users
HMRC has published new guidance for international post users.
The notice explains what happens when a business imports or exports goods by post through Royal Mail or Parcelforce Worldwide.
The arrangements set out in the notice do not apply when a full declaration on a single administrative document (SAD – Form C88) is required.
The information about sending a package overseas has been updated. This relates to the new need to compete a customs declaration for goods sent to the EU.
Bringing commercial goods into Great Britain in baggage
The guidance covers commercial goods (also known as Merchandise in Baggage) which will be used, or sold by a business, where:
- a commercial transport operator does not carry them for a business
- a person has travelled to GB carrying goods either:
- in accompanied baggage
- in a small vehicle that can carry up to no more than 9 people and weighing 3.5 tonnes or less
A person must declare all commercial goods. There is no duty-free allowance for goods brought into GB to sell or use in a business.
My guide to importing and exporting post Brexit here.
VAT: Brexit outcomes – retailers
I been asked many times about the VAT position of UK residents buying goods online (and also by more traditional methods) so I thought a brief overview would be helpful.
It has been reported in the media that some overseas retailers have stopped selling to UK customers. This is a commercial decision and is not necessarily solely due to Brexit (although, clearly that hasn’t helped).
What has changed?
Pre Brexit, under the Distance Selling rules, VAT at the rate applicable in the seller’s country would be chargeable by overseas suppliers to UK recipients. This was in the same way as a domestic sale. There were then thresholds which, when breached, resulted in the seller registering in the customer’s country, but these were rarely exceeded by small or SME businesses. The Distance Selling rules still apply to EU Member States, but not the UK.
As the UK is now a ”third country” sales to the UK from the EU which were previously intra-community sales are now imports. From 1 January 2021, sellers of goods B2C (to UK individuals) with a value below £135 – so called low value consignments are required to VAT register in the UK – more details here. Clearly, many businesses are loath to do this hence their refusal to sell to UK customers. This change is not a result of Brexit but was a measure to level the playing field between EU and non-EU supplies (the latter often escaping the tax completely). From 1 July 2021 similar rules will apply to UK businesses selling to individuals in the EU, although there is likely to be a simplification measure; the so-called One Stop Shop (OSS).
Additionally, UK customers are usually responsible for the new post-Brexit import of goods, so there may be unexpected new VAT, duty and courier costs when buying certain goods from EU countries. This is similar to buying goods from any other country in the world.
It would appear that there will be a reduction in cross-border trade (in both directions) with the UK, and that is without factoring in shipping issues and delays at new borders.