25 Nov Just how adverse will the effects of a no-deal Brexit be for you?
Just how adverse will the effects of a no-deal Brexit be for you?
25 November, 2020
With under 50 days to go before the transition period ends, British Prime Minister Johnson is telling us to get ready for a no-deal Brexit. The negotiations on future relations between the United Kingdom and the European Union are taking longer than the parties had ever anticipated. Which isn’t all that surprising, because it generally takes decades to establish a so-called free trade agreement between nations. If the parties don’t manage to come to an agreement, the standard agreements of the World Trade Organisation (WTO) will be invoked. There can be no doubt that a no-deal Brexit will have major consequences. But how adverse will these effects be for you?
In previous articles, we already discussed in broad lines the (potential) consequences of Brexit. Now we’d like go into a bit more detail on a number of considerations. However, in view of the current uncertainties, we can only speak of possible outcomes. We outline the effects of a no-deal Brexit for you.
On 1 January 2021, the United Kingdom will no longer be a member of the customs union and the internal European market. It means the end to the free movement of goods between the isle and the continent. This results in renewed customs formalities at the border, such as customs controls, import and export rules for products, quality controls, etc.
Imports to the Netherlands from the United Kingdom
Goods that you import from the UK must be declared to customs. Some of the goods being imported are subject to import duties which have to be paid immediately on crossing the border. On top of that VAT is due upon import declaration. However, if you import goods regularly from the UK, you can reverse charge the VAT by applying for a so-called Article 23 permit. This reverse-charge mechanism on import basically allows you to pay the import VAT when you file your regular VAT return. What’s more, if you have the right to input tax deduction, you can deduct this VAT as input tax on the same VAT return. On the whole, the Article 23 permit offers you a cashflow advantage.
Registration in the United Kingdom
Starting on 1 January 2021, deliveries to non-taxable persons/consumers will no longer be covered by the European scheme on distance selling. The general gist of this scheme is that Dutch VAT is payable on supplies to non-taxable persons/associations, provided that the threshold of £85,000 is not exceeded in that year or the previous year. If the deliveries stay below this threshold, registration is currently not mandatory in the United Kingdom.
However, in view of the upcoming legislative changes in the United Kingdom, UK VAT will be due on all consumer supplies that enter the United Kingdom from the Netherlands as of 1 January 2021. As a Dutch business, this means you need to register directly in the United Kingdom and file your VAT return in that country.
With shipment values under £135, there is no need to report the import and you only pay VAT on the delivery itself. Registration isn’t required when you sell goods from the Netherlands in the UK through an online marketplace that facilitates the sale. In such cases, the online marketplace is responsible for paying the VAT in the UK.
Imports into the United Kingdom
In situations where goods are imported into the UK, they must be declared to UK Customs. For imports to or exports from the United Kingdom, you will need an EORI number, which you use to declare goods and to apply for licences through the customs authority. To be able to trade with the United Kingdom, you need to have a special UK EORI number by 1 January 2021. In addition to applying for the number, you need to link the number to your UK VAT number. You may have to pay import duties on the import of goods to the UK.
Exporting goods from the Netherlands
Due to Brexit, delivering goods from the Netherlands to the United Kingdom and from the United Kingdom to the Netherlands will no longer be regarded as intra-Community supply, but rather as export. This means that, once Brexit is a fact, you will need to hand over an export declaration to the customs authorities. The supply of goods from the Netherlands to a customer in the United Kingdom is subject to 0% VAT under certain conditions. In other words, you will need to keep records of all documentation showing that the goods were shipped to the United Kingdom.
Where do we go from here?
What the consequences of Brexit are for your company depends on your situation. Bear in mind that even though Brexit may not affect your business, it may also have consequences for your suppliers. As mentioned before, the situation is still very uncertain and the intent of this article is purely to draw your attention to a few points. We would like to refer you to the Brexit Impact Scan, available via the Brexit desk, to gain a clear picture of the possible effects for your company. If you have any questions, please feel free to contact your consultant at Joanknecht or one of our specialists.