What’s changed about the VAT returns process this quarter?

VAT returns for March 2021 are looking different to previous years. Here’s how the accountants say the new regime is working out.

The Brexit transition period ended on 31 December 2020 and marked the UK’s departure from the EU and the Customs Union, followed by a raft of new rules – and added complexities – from 1 January. The provisionally effective new Trade and Cooperation Agreement (TCA) which became law from this date allows a certain degree of trade in areas such as goods and services, intellectual property, road transport and law enforcement and so on.

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Arguably, the movements of goods between the UK and the EU accounts for one of the major changes to VAT returns and the forms themselves now look slightly different in terms of terminology, payment options and information required.  

In particular:

  • Northern Ireland: under the new Northern Ireland Protocol arrangement, the region sits in both UK and EU territories. But as Northern Ireland still follows many EU rules and has a new regulatory border with the UK, additional checks on goods are required.
  • Postponed VAT accounting: There are now payment changes to how businesses can declare and pay import VAT.
  • Many of the nine VAT return boxes now require additional financial information relating to acquisitions of goods to and from the EU and NI while others will require zero entries.
  • Although not strictly Brexit-related, the new incoming VAT reverse charge within the construction industry ensures the end user – rather than the supplier – accounts for VAT.

With this in mind, we spoke to accountants to find out how Brexit has impacted the VAT returns process.

Brexit-based compliance and administrative burdens are putting businesses off dealing with the UK

Zoe Fatchen, tax partner, law firm, Gowling WLG

While the VAT deferral has been helpful, some smaller traders who have been considering importing into the UK are finding that the removal of the lower goods value threshold has created administrative and compliance burdens. These burdens have been severe enough to impact or even wipe out their profit margins. Some are therefore choosing not to enter the UK market or are needing to significantly increase their prices.

Next steps: Many UK businesses exporting to the EU are setting up operations in one of the continuing member states to simplify the VAT compliance process. In some cases this leads to a practical shift in their base of operations out of the UK, potentially on a long term basis.

Verdict: Brexit has created a shift in business operations with businesses trying to avoid administrative and compliance burdens. UK exporters are shifting operations base to EU member states while non-UK importers are avoiding importing to the UK all together.

Brexit has created new rules, regulations and nuances for accountants

Beverley Wakefield, director, Vibrant Accountancy

At first glance, VAT following Brexit might not look like a huge amount of change, but it’s the rules and nuances to consider which are complex.

Prior to Brexit and during the transition period, the UK formed part of the EU VAT regime, which meant that UK businesses did not have to register for VAT in each EU country but instead applied a common set of rules in relation to VAT. However, as of 1 January 2021, businesses in England, Scotland and Wales now need to consider various customs and VAT rules when importing or exporting to Northern Ireland and the EU, and also whether they should be registering for VAT in EU countries if they sell B2C.

We have a whole new breadth of VAT words and jargon to learn. Gone are dispatches and acquisitions and in are imports and exports, while the rules are slightly different if you’re dealing with Northern Ireland or other EU countries, you need to ensure you apply the right rules for the right situation.

We are typically hearing these questions from clients:

  • What evidence do I need to prove that goods have left the UK?
  • I sell B2C. Do I need to register for VAT in the EU country I sell in?
  • Do I still need to complete an EC Sales List?
  • How do I apply for the postponed VAT payment system?

The new rules are definitely confusing, no one size fits all, and what with COVID19 and the Reverse Charge in the construction industry, it has left business owners and accountants with a lot to get their heads around!

Next steps: Initially we advised clients to ensure they have their house in order, such as having their EORI number in place and fully understanding what is needed from a customs perspective. We have also produced a guide, which we send to them for them to review so that they can consider what rules will be relevant to them and what the tax implications are, and then we worked with them to explore on a more detailed basis on a case-by-case basis to identify what the VAT treatment was for them.

Verdict: The new rules are very confusing with a lot of new rules, nuances and jargon to adapt to, depending on the nature of the business and individual needs and requirements. VAT reverse charge and the pandemic has added to the general confusion.

It’s more preparation – but accountants are coping

David Frederick, managing partner, Marcus Bishop Associates, AAT President

There has been a lot of hype about the impact Brexit would have on VAT Returns this quarter, but personally, I think it’s been a damp squib. It’s like the Making Tax Digital situation; you have practitioners saying they’ll retire to avoid the stress of the complications, but it’s perfectly manageable if you put a bit of additional preparation time in.

I asked accountants within my network if they had prepared and if they had come across any unforeseen complications when preparing the Returns. Most are well prepared and have been able to tackle any knotty questions.

It hasn’t entirely been without complications. One accountant, for example, had a client that had to pay a customs clearance charge to import goods from Germany, because the goods were deemed do have originated outside the EU. Another reported that clients had been asking for information on how to deal with the reverse charge in relation to their customers.

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It is a lot of additional knowledge for accountants to take on, but it is achievable. You may have some challenges, but if you’ve prepared for them, they won’t have impact you in a big way.

Next step: Identify any potential issues and speak to those clients that might be affected by them – make sure they know what information you need and offer advice on any cashflow issues that may arise as a result.

Verdict: Yes, it’s new, but with additional preparation, accountants are well placed to rise to the challenge.

Mark Rowland is a journalist and former editor of Accounting Technician and 20 magazine.

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