Amendments to EU law: four quick fixes
Transitional deal
Despite leaving the EU on 31 January 2020, no VAT changes will take place until the end of the year at the earliest, when the Brexit transitional deal expires. This means that your business must comply with all EU regulations until this date. This includes some important changes that were introduced on 1 January 2020 and are intended to give consistency across all member states as far as trading in goods is concerned. These changes are known as “the four quick fixes.”
Conditions for zero-rating
The quick fixes should simplify international trading. Firstly, new rules have been introduced regarding the proof of export that you should keep if you sell goods to a VAT-registered business in another EU country, i.e. a zero-rated sale. It is also mandatory that the customer’s VAT number is shown on your sales invoices, although this has always been specified in UK law and HMRC guidance.
Tip. You can confirm that the customer’s VAT number is correct by using the online tool (see The next step ). However, be aware that these records might be a few months out of date, which can create extra administration work in some cases, e.g. you might need to get a copy of the customer’s VAT certificate issued by their tax authority.
Trap. If the paperwork is inadequate HMRC has the power to treat the goods as being supplied in the UK, i.e. subject to a VAT assessment.
Quality of evidence
The evidence you should retain to support zero-rating must be a mixture of commercial paperwork and transport details. HMRC’s approach is that it wants to be able to see the route of the goods from your UK shop or warehouse to the final EU destination in the customer’s country. It is therefore important that the paperwork also shows clear descriptions of the goods being sold.
Tip. You should keep the relevant export evidence for at least four years, i.e. the period where HMRC could raise an assessment for errors on past VAT returns.
EC Sales Lists
Another quick fix is that EC Sales Lists (ESLs) must be submitted to HMRC as a condition of zero-rating. This is different to the past where zero-rating would still be allowed, and you would just be required to submit backdated ESLs to HMRC. It is not known how strictly HMRC officers will apply this new rule, so the challenge is to make sure you submit timely and accurate ESLs until at least the end of 2020.
Tip 1. The new rules also clarify the way of dealing with VAT on chain transactions, i.e. where goods are shipped directly from the EU country of Supplier A to that of Customer C but the sale is made via Intermediary B in another EU country. These rules mean that Intermediary B will not need to register for VAT in the country of destination.
Tip 2. If you are affected by the above issues, it is important to read HMRC’s detailed guidance (see The next step ).
For a link to the online VAT number checker and to HMRC’s guidance, visit http://tipsandadvice-vat.co.uk/download (VA 10.08.05).