VAT in the Brexit deal: overview for limited company contractors with EU clients

Brexit took most of the UK outside the EU customs union, which means that sales by a UK business -- including a limited company contractor’s services -- to another business in the EU is now an export, writes Kevin Austin, managing director of overseas work advisory Access Financial.

No more MOSS

Furthermore, a system to simplify the VAT when selling digital services, the MOSS Scheme, used to be available to UK businesses, but the closing date for UK businesses to register for this scheme was February 10th 2021. 

The import of these two changes is that UK businesses that supply businesses in the EU will now not apply VAT to the sales. This is called 'zero-rating.' On receipt of that invoice by the EU customer, the customer will record the notional value of the import in their books, and it will work its way into their VAT returns. (N.B. If the corporate customer is not VAT-registered, they need not take any further action). So far, so good. 

Register in each EU state where you supply 

However, if you supply consumers in the EU from the UK, then the situation is different.

HMRC, under the MOSS scheme, conveniently divvied up the VAT to the proper VAT authorities. But with this scheme closed since February 10th, a UK exporter must now register for VAT in each EU state where they supply goods or services. In many cases, they will also have to appoint a VAT agent, such as a local accountant. Whoever the agent is, the whole point of the new framework is that the agent has to be ‘on the ground,’ in the customer’s country. Be aware ,there is no minimum threshold for registration so that a single transaction of any value theoretically will trigger the need to register locally for VAT. Quite the burden, potentially, if you’re transacting with non-corporate customers in more than one EU country.

Enforcement? TBC

How might this be policed? I do not have an immediate answer to that. Only time will tell but at this stage, we have no expectation that anything will happen where the amounts involved are small. And even where they are slightly greater than small, we do not currently see how a foreign VAT authority could impose penalties for non-compliance on a UK exporter. To avoid enforcement of some type (we suspect eventually), a ‘belt and braces’ approach is recommended for now, of both registering and having an agent in-situ.

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Written by Kevin Austin

Kevin is a Fellow of the Institute of Chartered Accountants in England and Wales, a Fellow of the Association of Chartered Certified Accountants, a Fellow of the Association of International Accountants and a Fellow of the Chartered Management Institute.

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