New Institute no-deal Brexit information centre

Feb 11, 2019

The coming week will see members of the UK Parliament put forward alternative proposals to avoid crashing out of the EU.  And time is of the essence given that the UK Prime Minister is due to provide the European Commission President with an update by the end of the month.  The Institute has created a hub for members to read all published guidance from the UK, Irish and EU authorities to help prepare for the possibility of a no-deal Brexit. This week you can also read practical examples of how the welcome proposals to delay VAT on imports in the UK and Ireland will affect you. 

No deal guidance

The Institute has created a dedicated hub on its Brexit webpage which collates guidance and information leaflets produced by the UK and Irish governments and the EU to help businesses and people prepare in the event of a no-deal Brexit.  The page will be updated as information is released by the authorities. Go to the website.

You can also read the practical customs guide prepared by the Institute and ICAEW using this link.  

Practical example of the VAT effect of Brexit

Without the introduction of the postponed method of accounting for VAT, the way VAT arises on goods imported into Ireland from the UK and into the UK from Ireland would change after Brexit.  At the moment, both the UK and Ireland are EU Member States and such goods are treated as intra- community acquisitions.  The purchaser is required to self-account for VAT on a reverse charge basis. 

For business to business purchases, the supply is zero-rated in the Member State of dispatch and the purchaser accounts for VAT in their VAT return that is due for the period in which the acquisition took place. The rate of VAT is the rate that would apply in the purchaser’s Member State.  If the purchaser is entitled to an input credit for the VAT payable on acquisition, they can claim this on the same VAT return.  

For example:

A trader in Ireland purchases goods to the total value of €10,000 from the UK in February 2019.  These goods will be onward sold as taxable supplies in the Irish business.  The UK company does not charge VAT on the supply to Ireland and instead the Irish trader charges themselves VAT at the rate applicable in Ireland (23 percent) which amounts to €2,300.  The Irish trader can then also claim an input credit of €2,300 as the goods were purchased for taxable supplies (and assuming the purchase is deductible for tax purposes).  Therefore from a cash flow perspective, no VAT is payable on the VAT return in respect of this transaction.

After Brexit – no postponed method

Looking at this scenario after 29 March 2019 if there is no other agreement, the goods purchased from the UK into Ireland will be regarded as imports from a country outside of the EU.  For imports from outside the EU into the EU, importers must pay the VAT to the tax authority in the importing country at the time when the customs duties are paid rather than at the time of filing their VAT returns.

Imported goods are liable to VAT at the same rate as applies to similar goods sold in the importing country.  The value of the imported goods for VAT purposes includes customs duty, anti-dumping duty and excise duty (excluding VAT), and certain transport, handling and insurance costs.

Therefore taking the above example, the VAT of €2,300 that arises for the Irish business on the goods imported into Ireland from the UK becomes payable to Revenue in Ireland immediately on importation in say April 2019.  The Irish trader then claims an input credit of €2,300 in the March/April 2019 VAT return which is filed weeks later in May 2019 (assuming returns are filed bi-monthly).  In contrast to the intra-community acquisition scenario, the Irish trader in this situation has an upfront cost of €2,300 which it can’t claim as a deduction for several weeks.

The postponed method 

The introduction of the postponed method of VAT accounting will mean that the VAT is not due upfront and will be accounted for at the time the next VAT return is due i.e. in the same manner in which intra-community acquisitions are treated.

Deferred payment account

It should be noted that, currently, for imports from outside the EU into Ireland, most traders have a deferred payment account with Revenue which means that the amount of VAT that is due is not taken from the traders account until the 15th day of the month following importation.  However many traders that only trade with the UK or other EU countries may not have a deferred payment account with Revenue.

Importing into the UK from the EU

Reversing this example; a UK trader imports £10,000 worth of goods from Ireland in April 2019. Without the postponed method of accounting for VAT, UK VAT of £2,000 would arise on import in April 2019 and any input credit due would then be accounted for in the next VAT return which would be due by 7 June 2019. With the postponed method, the VAT of £2,000 can be accounted for by 7 June 2019.

Key dates

Postponed method of VAT accounting will mean that VAT is not due until the next VAT return:

  • In Ireland this is generally the 23rd day of the month following the end of the bi-monthly period
  • In the UK, this is generally the 7th day of the second month following the end of the VAT period

 Read all our Brexit updates on our Brexit web centre.