This content was last reviewed 11 March 2024
Since 1 January 2021, the UK’s new relationship with the EU has impacted VAT and customs duty. How these new rules impact your business will depend on whether you supply goods or services and how your business is set up.
If you’re just getting started with trading with the EU, here are 10 developments you need to be aware of.
1. The UK is no longer part of the EU VAT and customs area
With respect to services, the UK is no longer part of the EU VAT system and goods moving between Great Britain and the EU are now imports and exports.
The EU member state of import collects VAT when goods are sold from outside the EU (including GB) to customers based inside the EU. Depending on your business model and Incoterms® used, you may need to register for VAT in each of the different member states that you trade with.
The EU distance selling threshold (currently €10,000) only applies to EU*-established traders. This can mean that UK-based businesses need to consider registering for VAT in different member states, even for very low levels of sales.
* NI-based businesses still benefit from this with regard to sales of goods from NI to EU consumers, but not with regard to digital services.
2. Northern Ireland Protocol
The Northern Ireland Protocol means that Northern Ireland is treated as part of the EU for customs purposes and some EU VAT administrative processes regarding goods moving to, from, and within Northern Ireland. However, Northern Ireland is still part of the UK’s VAT system and will remain completely aligned with the rest of the UK in relation to services.
The Government has detailed guidance on when and how you need to account for UK VAT on your UK VAT return if you’re selling goods to, from or within Northern Ireland. The main implications of the Protocol for goods moving between Great Britain and Northern Ireland are in relation to the second hand margin scheme. For goods sold from Northern Ireland to the EU, these are still treated as EU supplies and therefore subject to EU rules on zero-rating, EC Sales List and Intrastat reporting and distance selling.
A customs declaration must be made on goods moved from GB to Northern Ireland and any EU tariffs due must be paid (or waived).
Under the Windsor Framework, new procedures for moving goods from GB to NI are to be introduced in September 2024. This will include, for the first time, the need for declarations to be made on parcels moved B2B to customers in NI. There will also be the introduction of simplified declarations for goods that are “not at risk” of being moved into the EU.
3. You need an EORI number to move goods cross-border
You must apply for a GB EORI number if you are importing goods into or exporting goods from Great Britain.
If you are importing goods into Northern Ireland from outside the EU, or exporting goods from NI to a non-GB or EU destination, you need an EORI starting with XI.
Although an EORI number will be linked to your VAT number (if VAT registered), it is primarily for customs purposes.
4. Movement of goods from Great Britain to the EU is now an export
In the majority of cases, these exports will be zero-rated for UK VAT purposes. An export declaration is needed to remove the goods from GB and an import declaration is needed to import the goods into the EU. EU import duty may be levied on the goods unless they meet the origin requirements of the EU-UK Trade and Cooperation Agreement (TCA).
Read our guide to getting started with importing and exporting for more information.
5. Import One Stop Shop (IOSS) for EU imports
As part of the EU’s July 2021 B2C e-commerce changes, the Import One Stop Shop (IOSS) was introduced. This enables non-EU suppliers to account for EU VAT on their supplies of goods imported to EU consumers.
UK businesses, importing small value (under €150) packages into the EU, in the course of selling to EU consumers, can register for this scheme in a single EU member state. They then use this to administer the EU VAT for all member states they sell to in this way. This means that the EU VAT will be collected and charged at point of sale online, and then paid via the IOSS.
Read our guide to EU VAT e-commerce rules explained for online sellers.
6. UK VAT registered importers can postpone import VAT for UK imports
On 1 January 2021 the Government introduced a new (optional) mechanism specifically for import VAT called Postponed VAT Accounting (PVA). Instead of paying the import VAT, a VAT registered importer can self-account for the VAT as output tax (Box 1) on their next UK VAT return and (subject to normal VAT recovery rules) recover the appropriate amount on the same VAT return (Box 4), thereby improving cash-flow. Importers do not need any pre-authorisation to use PVA but they must inform their customs agents that they wish to use it so that the import declaration is completed correctly and must keep downloads of the Monthly Postponed Import VAT Statements from HMRC’s CDS system to support the amounts declared.
7. HMRC’s rules on VAT and duty deferment accounts (DDA) have changed for imports
HMRC has introduced a guarantee waiver for deferment accounts and, with the introduction of PVA (see 6 above), there is often no need for deferment accounts to cover import VAT. Traders with a DDA should review their account limits and reduce the financial guarantee.
8. Changes to submission of EC Sales Lists
A European Community Sales List is used by VAT-registered business to report supplies to EU VAT registered customers.
If you’re exporting goods from Great Britain to EU businesses or supplying services from the UK to the EU, you no longer need to submit EC Sales Lists. However, these are still required if you’re selling goods from Northern Ireland to EU VAT-registered customers.
9. Supplying Services to EU consumers
For services, place of supply rules still apply in largely the same way, especially B2B, but there are some changes, including for digital services. When providing cross-border services, you should check the rules for the type of service concerned and will probably need to know your customer’s location and whether they’re a business or private consumer.
For most services sold B2B, the EU business customer remains responsible for dealing with any EU VAT itself, rather than you as UK supplier.
For B2C sales however, if the place of supply is the EU, the UK supplier will likely be required to VAT register in the EU, especially for the sale of digital products, unless these are via a third party platform.
The EU introduced new VAT rules from 1 July 2021 for B2C e-commerce sales to EU consumers from non-EU countries. These changes included removal of previous distance selling thresholds with an EU-wide €10,000 one for distance selling of goods and B2C sales of digital services. They also replaced the MOSS VAT registration system with the Union OSS (One Stop Shop) for EU-established businesses and the Non-Union OSS for other affected suppliers.
10. You may need to appoint a fiscal VAT representative or agent
If you need to register for VAT in an EU member state, there may be a requirement to appoint a fiscal representative.
You should talk to your accountant in the first instance and look at the Government guidance to see if there are any markets in the EU where you will have to have to register a fiscal representative. Requirements differ by member state so you should check if you need one.