Brexit will affect the UK business landscape. In this week's podcast, I am going to take a look at Your Business and VAT after Brexit.

Last week’s podcast episode of I Hate Numbers looked at Brexit and Your Business. In this week’s episode, VAT takes centre stage.

Firstly let’s consider that from a VAT point of view countries outside of the UK will be the Rest of the World. The 27 remaining countries in the EU will see us as a third country.

What will happen to VAT after Brexit?

VAT was introduced into the UK when the UK joined the EU on 01-January-1973. In theory the UK could abolish VAT after Brexit, but this won’t happen. Too much money is raised. Most importantly, the government has indicated it will continue to have a VAT system in the UK.

VAT is here to stay. The changes and treatment on Your Business and VAT after Brexit will be determined by two main considerations

Firstly, if your business sells goods, services, or a combination

Secondly, what type of customers will you have in the EU, businesses (B2B), or consumers (B2C), or a combination.

Listen to find out more

Goods and Services

As a result of the UK leaving the EU there is a difference in treatment between goods flowing between the UK and the EU. That is to say, those movements will be described as imports and exports. Listen to find out more about

• Vat, duties, customs declarations, forms and procedures
• VAT postponement scheme
• Storing inventory
• Distance Selling Rules
• Exports
• Services

 VAT treatment on selling your services

Firstly, to figure out what will happen with Your Business and VAT after Brexit we must understand the place of supply rules. As a result, this lets us know whether

• VAT is due
• Whether it's our business or customer who pays for and deals with the VAT, in terms of accounting and payment
• Fundamentally nothing changes in principle post Brexit.
• I also talk about the reverse charge procedure. Under the reverse charge procedure, your customer has the responsibility to account for VAT on your sales.

Above all, listen to find more

VAT and Brexit and selling digital products

On 1st January 2020 if you sell any digital products into the EU Business to Consumer, then VAT is charged at the rate due in that EU country, VAT registration and payment follow. For instance, if I sell digital downloads of I Hate Numbers and someone in France bought a copy, I would need to charge them French VAT.

Two options

Option One

Register with each country and comply with each country’s local VAT rules and timings for administering and paying VAT.

Option two

VAT MOSS

MOSS makes your life easier, who wouldn’t want that?  On the other hand, you can choose from one of the 27 EU to register in and pay your VAT.

What Next

Most importantly Your Business and VAT after Brexit will be different but not radically different to what we have now.

If you sell digital products and want to find out more about how EU VAT will affect your business, what to do, take out the stress then register for our webinar. Making digital sales means you need to up your game when it comes to using the right systems and software. Life is hard enough without obsessing over tax rules at home and abroad. An easy to use, intuitive helping hand can be found with Quaderno. It calculates sales tax, VAT, and GST (Gross Sales Tax) for you. Quaderno, good not just for the EU and VAT, but for dealing with VAT and sales taxes throughout the rest of the world,

Now, make yourself comfortable, sit back and listen. Most importantly, subscribe so you do not miss an episode.

In This Episode

• Understanding the treatment of VAT and goods between the UK and EU
• Appreciating the VAT treatment of services
• Learning about the place of supply rules
• Hearing about registering for EU VAT and MOSS
• Developing your own Numbers confidence and decisions
• Take more control of your numbers to help make you money, survive and thrive

Links

https://podcasts.apple.com/podcast/proactiveresolutionss-podcast/id1500471288

https://play.google.com/music/m/I3pvpztpjvjw6yrw2kctmtyckam?t=I_Hate_Numbers

https://open.spotify.com/show/5lKjqgbYaxnIAoTeK0zins

https://www.stitcher.com/podcast/proactiveresolutionss-podcast

https://tunein.com/podcasts/Business–Economics-Podcasts/I-Hate-Numbers-p1298505/

You are listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

VAT and your business in a post-Brexit world. What does it look like? How's it going to change? So, come the 1st of January, 2021 when the UK and Brexit are one of the same, what is going to change with VAT? Hi, folks. Welcome to episode 42 of I Hate Numbers. The show that has its mission to improve your money mindset, help your business make more money, cut through the noise and complexity of the rules and regulations, save tax, and create more time for your business.

This week's topic is on the VAT landscape and your business come 1st of January, 2021, 47 years after the UK joined the European community. There are five things I want to cover in this podcast. One, to present an overview of VAT. Will it be abolished post the 31st of December, 2020? As a heads up, the short answer is no.

Secondly, the VAT treatment of goods and services with the EU, the VAT treatment when it comes to selling digital products. So, when it comes to having downloads, if you're selling advertising spaces, selling services into the EU, how does VAT affect your business? How we deal with that, the actual mechanics, something called a MOSS scheme, which I'm going to introduce to you.

And lastly, the next steps that we need to do to get prepared for when that eventuality happens on the 1st of January, 2021. The first issue I want to address is just the general overview of how VAT is going to change come the 1st of January, 2021, and also whether VAT is likely to be abolished. Now, I raised that question as to whether VAT is likely to be abolished because VAT was introduced into the UK when we joined the EU on the 1st of January, 1973.

Fundamentally, the UK has the right, has the ability to abolish VAT. The likelihood of that actually happening is anything between zero and zero. Critically, the reason is VAT is a major tax-revenue source for the United Kingdom. It raises approximately 137 billion pounds, certainly for 2019/20. It accounts for a fifth

of the total UK tax receipts, and in common with the rest of the world, there are at least 166 countries in the world that have VAT as a system, that number is growing and around the world it accounts for a fifth of government's tax revenue. It's a very efficient system in the sense that businesses that are registered for VAT fundamentally play the part of unpaid tax collectors and administrators of the system. And also, the UK government has asserted it will maintain VAT as a system.

Having said that, what we've got to do to set in frame is that once the UK leaves the EU at the risk of stating the obvious, it will no longer be an EU country. So, in VAT terms, with your VAT goggles on, countries outside the United Kingdom, England, that's England, Scotland, and Wales, Northern Ireland has its own special trading status, will be considered the rest of the world.

The good news is, fundamentally, the principles of VAT will largely remain the same. There'll certainly be some change in systems, procedures, and paperwork that one needs to generate, but fundamentally, the treatment where the taxes added to goods and services that you supply, if you’re VAT registered, will fundamentally stay the same.

The next area I want to tackle to look at is the VAT treatment of goods and services between the UK and the EU. There are two things to take into account here. Number one, what is it that your business actually sells? Is it goods or is it services, or is it a combo? The second consideration is the type of customers that you have.

I don't mean in terms of their behaviour, I don't mean in terms of how they interact with your business, but are they businesses or are they consumers, or is it a combination of the two? Let's look at those two items first in terms of goods and services. Now, goods take their natural meaning. These are physical and tangible.

You can see them and you can touch them. Obviously, if they're light goods, you can pick them up. If it's heavy machinery, you can't. So, they have their physicality behind them. So, things like food, drink, clothes, machinery, and equipment would all be classified as goods. Services, on the other hand, are non-physical and intangible.

This would cover typically software, legal services, telecommunication, TV, radio broadcasting, and digital services. This could be you running a training company, and it could be the services you provide, either live or by nature of downloads, whether they're PDFs or videos. Having established whether your business is selling goods or services, or a combo, having then established whether you are selling B2B as it might be called, or B2C, we can then look at the VAT treatment accordingly.

Now, in terms of VAT, by the way, a business does not necessarily have to be VAT registered, but it needs to be able to be identified as a business in its own right. So, obviously a VAT number is a bit of a smoking gun. That's a good identifier. Tax references, company-registration numbers can also count. When it comes to the VAT treatment of goods,

again, we need to consider two issues. Number one, whether they're going into the EU or whether they're coming from the EU. Post Brexit, goods that arrive into the UK from the EU, and there are 27 countries that make up the EU once the UK leaves on the 31st of December, 2020, will be classified as imports.

VAT, duties, custom declarations, forms and procedures will apply to all those goods arriving from one of those 27 countries. Prior to the 1st of January, 2020 when Brexit arrives, they were known as interest-EU acquisitions and documentation wasn't required. They would not have been classified as imports.

Now, any VAT that's due on the imports will not have to be paid immediately, which is good news as far as your cash flow is concerned. There will be a scheme called the VAT-postponement scheme, and the VAT that's due on those imports will be declared and payable when you complete your VAT return.

However, if you have a premise outside of the UK where you store inventory in the EU, then EU VAT will apply, and you have to register for VAT in that country. There are no minimum VAT thresholds, by the way. So, again, if you store goods, whatever the value of those goods are, in any of the EU countries, you must register separately in each member state.

When goods come in at 135 pounds or below the seller, the vendor, or the postal service will have to declare those imports, and VAT will be payable via a new quarterly regime. Also, once registered, you'll have to comply with what's called the distance selling rules. We made reference to that in last week's blog.

I'll mention that again in the show notes, but distance-selling rules apply where you're selling goods to consumers. Now, let's have a look at the flow of goods leaving the UK to go into one of the 27 EU states. They will be classified as exports. They'll be treated as we currently do for goods going outside of the EU, and they will be outside of the scope of UK VAT.

Now, that's good news. It means you don't have to charge any VAT, you don't declare any VAT, but you must still recall the value of those sales on your VAT return. As a heads up, if your business is not currently VAT registered, then you must include these sales when you decide whether you are meeting a threshold for VAT registration.

As a heads up, that magic number is 85,000 pounds on a rolling 12-month basis. So, let's recap. We've given an overview about VAT. Will it still exist after Brexit? Short answer, yes. We've talked about goods. We've differentiated between goods and services, and we've looked at the VAT treatment of the importation of

goods from the EU. They'll be known as imports. Duties, customers declarations, procedures will apply. Any VAT due on those imports will be declared when you do your VAT return, so you don't have to pay them when they land in the UK. We've talked about goods leaving the UK. They'll be known as exports. Outside of the scope of VAT, you still have to record the value of the sales in your VAT return, but there is no VAT to pay.

Now, let's talk about services now. When it comes to services, it's slightly more challenging and slightly more complicated when we deal with services, and what we need to consider is something that's called the place of supply rules. Now, the reason we need these sets of rules here because that determines which party to the transaction takes care of paying the VAT and declaring the VAT.

And I'm going to give you the overview of what's called the general rule, and like all things in life that are tax-related, there are always exceptions. Now, the place of supply for B2B services is based on where your customer belongs. So, if I provide services from the UK to a business based in France, that's a B2B transaction and the responsibility for accounting for the VAT falls on my French customer. Typically, they apply something called the reverse-charge procedure.

They have to account for the VAT at the local rates, and typically they also claim it back. So, it’s cash neutral, but effectively they have to declare what's called the output VAT on that transaction at the local rate. On their VAT return, deduct the appropriate amount, which is the same figure. There's no cash that changes hands, but that's how it's accounted for.

Bear in mind, by the way, it goes the other way around. So, if you receive services from an overseas supplier, you will abide by reverse charge as well. Now, when it comes to B2C, that's where you are selling to a consumer. The default position, the general position is where your business belongs. So, if you are a UK business supplying services to say a German customer, that's an individual,

then the VAT by default is based on where you are located in the UK and you charge 20% VAT accordingly. However, there's a slight difference here and there are a number of exceptions, approximately 15 exceptions. Typically, the main exceptions cover things like physical property, like land, telecommunications, broadcasting,

admissions to certain sporting and educational and cultural events, and for the one that's of particular relevance to us is the provision of electronic or digital products and services. In that case, it's based on where your customer is located. Now, if you only sell B2B digital products in the EU and digital products are as they imply. So, this could be downloads of a book that you are selling.

It could be downloads of a training product. It could be providing advertising services. It could be providing hosting space. If it's B2B, there is no minimum registration threshold for VAT, when you are selling B2C, and you must charge VAT at the appropriate rate in that country. So, let's recap. When you sell B2B digital products in the EU, the good thing is there's no need to register for EU VAT. When you're selling B2C, however, that situation changes, and you must charge VAT at the appropriate rate due in that EU country, and within the 27 countries that make up the EU,

once the UK leaves, there are also varying rates of VAT that apply. The massive change post Brexit will be if you even sell one individual digital product in Europe, B2C, then you need to register and get yourself a VAT number. So, for example, if I sell digital downloads of I Hate Numbers, and someone in France bought a copy, then I need to charge them French VAT.

Now, this could be a potential challenge and a problem, and I've got two options to how to deal with that accounting. So, if I'm selling B2C to the EU, the two options are: firstly, I register in each country where I make a sale of a digital product. Now, remember, even if you only sell one product and that's it, you still have an obligation to register.

If you sell across a multitude of countries, then you must register in each one. That's certainly option number one. Now, if you're not multilingual, if you haven't got the capacity of the resources to do that and there's no logic for doing that, then obviously that's going to be quite challenging, to put it mildly. There is an alternative

and it's something that's called the MOSS scheme. Now, the MOSS scheme stands for mini one-stop shop, and in general terms, you register post Brexit with one designated EU country. You submit your return to that one individual country detailing the VAT that you charge on each of the sales. That EU representative country that you've registered with then will distribute the VAT to the respective

countries. They will take care of the return, and therefore that saves a lot of administration and a lot of pain. The last thing I want to talk about when it comes to MOSS, your business may already be in what's called the MOSS scheme. On the 1st of January, 2021, if you are already operating the MOSS scheme, the scheme will no longer apply to sales into Europe, and you must do a fresh registration

called a non-union MOSS scheme. If you've not done it before, then you've got to register for the first time. If you are currently registered for the UK's VAT MOSS scheme, then the period ending December, 2020 is the last time you can use it for B2C EU sales. Only sales made up to and including the 31st of December, 2020 can be included and you must submit that return by the 20th of January

2021. The last thing I want to deal with now is what MOSS VAT will be in a post Brexit world. Now, as I referred to early on, the MOSS scheme is fantastic in a sense of allowing non-established service suppliers to file one single return detailing which EU state you sold your digital products to, but you only submit the return to one member state.

You as a business must choose a designated member. There will be a question about which of the 27 states that you use for most UK businesses, then it's likely going to be influenced by the language of choice. So, typically if you're an English speaking country, then Ireland is likely to be your preferred choice.

Also, factors such as the ease of use of the VAT portal they were set up, the actual components, the economic state of the country. If it's a country that's very developed and very economically stable, then it's likely to be spending more resources on maintaining that VAT portal. If you happen to be French-speaking country, then obviously the French MOSS system may be the one that you choose.

Last couple of things to mention, you cannot register for VAT MOSS, unfortunately, in an EU member state before the 1st of January, 2021. The European Commission website, which I'm going to add in the show notes at the end, will give you a list. The last thing I'm going to wrap up now, let's just conclude. We talked about what VAT is, how it applies.

We talked about the VAT treatment of goods and services into and outside of Europe. We talked about the VAT treatment of services in and out of Europe. We talked about the sale of digital products, which I believe will apply to lots more businesses these days that have digital products. So, even if it's a single download, it counts and there is no minimum threshold limit,

by the way. If you sell one product into any of the EU countries, you must either register in each individual country or you set up what's called a non-union MOSS registration. If you look at the link in the show notes, there's a link to a follow-up seminar, webinar, take your pick as to which one it'll be, that I will be presenting next week.

For those listeners of the podcast, if you distribute, you can share it with your friends and family, then enter in the appropriate discount code and there'll be a reduction to my loyal listeners. So, folks, hope you've got some value out this podcast. Key thing is to act sooner rather than later.

Don't delay. Read the show notes. Get some more information. Hope you love the podcast, and I'd love it if you could subscribe, and share that with your friends, colleagues accordingly. Until then, I'll see you at the same time next week. We hope you enjoyed this episode and appreciate you taking the time to listen to the show.

We hope you got some value. If you did, then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.