VAT after Brexit deal
On Christmas Eve, after lengthy negotiations that were very tense up to the last moment, the UK finally struck an agreement on its future relationship with the EU. For EU companies, this means that preparations made so far will not be wasted. Below we summarise the deal’s implications for indirect taxes.
As for customs duties, the EU–UK Trade and Cooperation Agreement provides for a preferential system, allowing to apply a zero rate of customs duty. To apply the zero rate, it will be necessary to present relevant documents proving the origin of the goods in the EU or in the United Kingdom. If the documents are not submitted in the customs procedure, a standard rate under the EU’s Common Customs Tariff shall apply. Detailed information on the ‘preferential origin’ rules and customs procedures can be found in Guidance Note on the Withdrawal of the UK and EU Rules in the Field of Customs, Including Preferential Origin.
As for VAT, we kept you informed of all changes throughout the past year, and the now concluded agreement on future partnership between the EU and the UK has only confirmed this information. From a VAT perspective, the UK has become a third country from 1 January 2021.
Cross-border trade in goods and services shall be governed by rules on applying VAT upon the import and export of goods (or provision of services) from/to third countries, with an exception for supplies of goods to Northern Ireland, which will continue to be regarded as intra-community supplies. For this purpose, Northern Ireland has been assigned a specific ‘XI’ identifier, which can already be seen in the VIES system. Services are not covered by this exception.
Supplies of goods whose transportation was initiated in 2020 but only completed in 2021 will still be regarded as supplies to the UK under the European rules. Goods dispatched after 31 December 2020 shall already be subject to the new customs procedure. ‘Non-controlled’ goods (under customs legislation) imported until June of this year may be imported under a simplified customs procedure. Similar rules shall apply to the reporting of transactions in EC Sales Lists and Intrastat reports.
Intrastat codes have also changed: an ‘XI’ code has been introduced for Northern Ireland, same as for VAT purposes, and an ‘XU’ code, intended solely for the purpose of filling-in the state of origin in the UK excluding Northern Ireland.
In January 2021, it will still be possible to report movements of goods between the Czech Republic and the UK in Intrastat, due to the time mismatch related to the goods’ transportation or due to reporting of the goods at the same time as for VAT purposes. From February 2021, only movements of goods between the Czech Republic and Northern Ireland shall be reported.
Finally, we draw attention to the possibility of having VAT paid in the UK refunded. An application for a refund of tax paid before the end of the transition period, i.e. 31 December 2020, can be filed through the Czech financial administration’s electronic portal. The application must be filed by 31 March 2021 at the latest. It should also be possible to apply for a refund of tax paid in 2021, based on the reciprocity principle, but the application will have to be filed directly with the British tax administrator.
The impact of Brexit on VAT is also briefly summarised in the recently released financial administration’s information.