Key takeaways
- UK businesses must comply with UK VAT rules when trading with EU customers.
- VAT regulations vary depending on the type of service and circumstances, while “Use and Enjoyment” rules apply to services sold outside the UK.
- Businesses exporting goods or supplying digital services must remain organized & up-to-date with their VAT reporting obligations.
In short: Whether a UK business charges VAT to EU customers after Brexit depends on what it sells and to whom. B2B services use the reverse charge, so no UK VAT is charged. Most B2C services carry UK VAT. Exported goods can be zero-rated, and digital services to EU consumers carry VAT at the customer's country rate.
Imagine you're a UK business owner who has dealt with customers in the EU for years. Then Brexit becomes a reality, and you face a host of new VAT rules and regulations. One common question is, “Do I charge VAT to EU customers?”. The changes can still be hard to get your head around. Below, we guide you through the VAT landscape after Brexit. We help you handle trade with EU customers, including whether or not to charge VAT.
What are the UK VAT rules for businesses?
UK VAT rules require businesses to register for VAT once annual turnover passes £90,000 and to charge UK VAT at the standard rate of 20%. Value Added Tax (VAT) is a tax on goods and services collected by the government. It raises revenue and makes sure businesses pay their fair share of tax.
UK businesses must give their VAT number to suppliers when making purchases. They must pay UK VAT at the standard rate of 20%. Some goods and services are exempt, such as postage stamps, insurance, and financial services and transactions.
After Brexit, the VAT rules for goods supplied to and from third countries now apply to the EU too. UK businesses can no longer use the electronic system to recover VAT paid in other EU countries. Instead, they can claim refunds using the existing refund system for non-EU businesses. However, the rules vary across each EU country. To support this, HMRC has created a service to check UK VAT numbers for cross-border supplies quickly.
You need to understand and follow UK VAT rules to run your business legally and smoothly. This includes knowing when you or your customers must pay VAT. Staying up to date with these rules helps you avoid pitfalls and trade smoothly with your EU customers.
Do you charge VAT on services to EU customers?
Whether you charge UK VAT on services to EU customers depends on the type of service and the circumstances. Here are some key points to keep in mind:
- B2B transactions follow the reverse charge mechanism.
- B2C transactions may require charging VAT at the UK rate.
- The pre-Brexit B2B principle remains unchanged, with only limited changes to VAT on services.
- Certain cross-border B2C services to EU and UK consumers may have specific VAT requirements.
Below, we take a closer look at the VAT rules for B2B and B2C transactions. This will help you see how they affect your dealings with EU customers.
How does VAT work on Business-to-Business (B2B) transactions?
For B2B services between the UK and the EU, the business customer in the EU Member State accounts for the VAT itself under the reverse charge mechanism. So if you provide services to EU companies, you must know the VAT treatment and follow the rules. We cover this in more detail in Understanding VAT Place of Supply Goods Rules.
UK Invoices to EU customers should include the customer's EU VAT number. They should also include a note saying “No UK VAT charged – reverse charge on your VAT return”.
Under the reverse charge mechanism, customers account for VAT themselves. This makes sure VAT duties fall on the right party. For example, say a UK-based management consultant does work for a business customer in France. The place of supply for VAT purposes is France. Invoices for these sales must include the business customer's VAT number. They should also clearly state “reverse charge VAT applies to this transaction”.
How does VAT work on Business-to-Consumer (B2C) transactions?
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UK suppliers of B2C services generally must charge UK VAT on sales to customers in the EU. They must also charge UK VAT on sales to customers outside the EU. Special rules apply to certain B2C services, and they vary from one service to another. Related reading: B2C vs. B2B Sales: How Does VAT Apply?.
For instance, non-land-related legal services supplied by a UK lawyer to an EU (or other non-UK) non-business client are exempt from UK VAT. Special rules like this make sure VAT is applied and accounted for correctly in different situations.
Knowing the rules for B2C transactions helps you meet the right VAT duties. It also helps you keep a good relationship with EU customers.
How does VAT work when importing goods from the EU?
When importing goods and services from the EU, UK businesses must account for VAT through the reverse charge mechanism.
Here are some key points to remember.
- All goods entering the UK as parcels sent by overseas businesses are liable for VAT, unless they are zero-rated.
- The value threshold for VAT on imported goods is set at £135.
- UK VAT-registered businesses importing goods to the UK can account for import VAT on their VAT return.
You must pay VAT at UK rates on goods bought from countries outside the UK. Postponed accounting for import VAT was introduced for all imports from 1 January 2021. It lets businesses avoid paying import VAT when goods arrive in the UK. Instead, they account for it on their VAT return.
This deferred payment system can ease cash flow for UK businesses. It also helps with some of the financial challenges of importing goods and services from the EU.
How does VAT work when exporting goods to the EU?
When you export goods to the EU, import VAT and any customs duties (tariffs) must be paid when the goods arrive in the EU. To stay compliant, UK businesses exporting zero-rated goods to EU businesses must keep evidence that the goods left the UK. For a closer look, see VAT Northern Ireland: How the System Works Post-Brexit.
The Common Transit Convention (CTC) is a scheme designed to make customs procedures simpler for businesses. It allows companies to:
- Defer payment of VAT and customs duties until their goods reach their final destination
- Streamline their export process
- Reduce upfront costs when exporting goods to the EU
By using the CTC, UK businesses can gain these benefits, making the UK an ideal base for a UK company.
How does VAT work when supplying digital services to the EU?
UK businesses supplying digital services to EU customers must charge VAT at the rate of the customer's country of residence. They must declare these sales to the right EU Member State. You can register for VAT in each EU Member State or opt for the VAT OSS non-union scheme. This non-EU scheme lets you register for VAT in one EU Member State of your choice.
Non-UK businesses that used the UK VAT MOSS non-union scheme must now register for the scheme in an EU Member State. They must declare sales of digital services to UK consumers by registering for VAT in the UK and filing a UK VAT return. For the latest guidance on VAT on digital services and VAT OSS, visit HMRC's website.
By understanding and following these rules, UK businesses supplying digital services to the EU can stay compliant. They can also keep strong relationships with their EU customers.
What are the "Use and Enjoyment" rules?
The “Use and Enjoyment” rules set the place of supply of a service based on where the service is actually used and enjoyed. These rules apply to certain services, such as the hiring of movable goods. See VAT Notice 741A for the list of UK services subject to a ‘use and enjoyment’ override. You'll find it in Section 13 of the published notice.
By knowing these rules, UK businesses selling services outside the UK can apply VAT correctly based on where their services are used and enjoyed. This helps them avoid compliance issues.
How do you report VAT on EU transactions?
UK businesses must submit their VAT return digitally to HMRC every three months. The deadline to file a VAT return and pay electronically is one month and seven days after the end of each accounting period. Since 1 January 2023, late VAT returns earn penalty points that can lead to financial penalties. Paying late can also trigger late payment penalties.
To avoid these penalties, stay organized and up to date with your VAT reporting. VAT software and professional tax specialists can help you stay compliant and avoid fines.
As well as reporting on time, keep your VAT documents accurate, such as invoices with the correct VAT numbers and details. This gives you a clear record of your transactions with EU customers.
Can UK businesses still trade smoothly with EU customers?
Yes, UK businesses can still thrive when trading with EU customers if they understand the VAT rules after Brexit. VAT after Brexit may seem complex. But by staying informed, compliant, and adaptable, UK businesses can overcome VAT challenges and keep strong relationships with their EU partners.
Do you need help with your VAT compliance? Book a free call with one of our VAT experts to find bespoke solutions for your business, optimize your VAT costs, and reach millions of new potential customers.
How Taxually handles this
Taxually’s CrossTax handles VAT registration, VAT, OSS and IOSS returns and fiscal representation in the countries you sell into, and checks your sales data against 250+ validation rules before each filing. OneTax then pays every tax authority with one bulk payment in your chosen currency.
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Frequently asked questions
Do UK businesses need to register for VAT in each EU country where they sell digital services?
UK businesses do not need to register for VAT in each EU country where they sell digital services, as they can instead opt for the VAT OSS non-union scheme in a chosen EU Member State.
Under the VAT OSS scheme, businesses can register in one EU Member State and then pay VAT due in each EU country where they sell digital services. This simplifies the process of VAT registration and payment for businesses operating in multiple EU countries.
What is the "Use and Enjoyment" rule?
The “Use and Enjoyment” rule establishes that for certain services, such as the hiring of movable goods, the place of supply of services, is determined by the effective use and enjoyment of the service.
This rule is important for businesses to understand when determining the place of supply for their services. It's also important for customers to understand, as it can affect the amount of taxes they may be liable for.
Are there any exceptions to charging UK VAT for B2C services provided to EU customers?
Yes, certain B2C services such as non-land-related legal services supplied by a UK lawyer to an EU non-business client are exempt from UK VAT.
What is the deadline for submitting a UK VAT return and making payment electronically?
The UK VAT return and payment deadline is one month and seven days after the end of each accounting period.
