Brexit obviously changes the game if your UK business sells to customers in the European Union. You’ve probably already read a ton of background about how Brexit might affect your business.
So let’s keep this simple.
After years of confusion, here’s a straightforward guide to post-Brexit EU VAT.
What to do if you sell digital products
Because you sell digital products, you’re eligible for the VAT One-Stop Shop, or OSS. This scheme is drastically simplified and could save you a lot of time.*
You might have already been registered with the UK’s OSS before. Now you need to re-register in an EU member state of your choice.
This section will tell you
- How to wrap up 2020 with the UK’s VAT OSS
- How to transition to a new EU OSS
- How to comply with a foreign EU OSS moving forward
Finish the 2020 fiscal year with your current UK VAT OSS
This is the last time you’ll include European sales in your VAT return.
The final return period for the UK’s VAT OSS system will be the period ending 31 December 2020. You should only include sales made before 1 January 2021 in your final return.
File the return, as you usually would, by 20 January 2021.
Register for EU VAT as a non-EU business
Before you re-register for EU VAT, you should know it’s not required across the board. Here’s the breakdown:
- If you only sell digital products in B2B transactions, then you do not need to register for EU VAT.
- If you ever sell digital products B2C in Europe, even just once, then you need to register and get your business a VAT number!
So, if you’ve decided you do need to register, let’s carry on…
As of 1 January 2021, you should register with a new EU VAT OSS in the non-union scheme. Like we said above, you can choose which of the 27 member states you’d like to serve as your “homebase” in the European Union.
Tip: If your native language is English, you might want to choose Ireland. Unless you like a challenge!
1. Choose your country and find its EU VAT OSS online portal.
2. Add your company information and bank account details.
3. Then enter your personal contact information.
4. From there, you’ll be asked about your company’s VAT history.
5. After this, the portal will send you to a summary page where you can review all the information you entered. Make sure it’s all correct!
6. Submit. And that’s it!
That’s the whole registration process. You’ll receive your new EU VAT number either electronically or by mail. The prefix of the number will be “EU.”
*If you don’t want to use VAT OSS after Brexit, then you have to register for VAT in each EU member state where you sell your digital products. (Every. One.) And then you must follow the different local rules and timelines for tax returns, which is an extra hassle. Basically, OSS is the way to go.
Comply with the EU VAT OSS non-union scheme
Once registered, you must comply with all the rules. And the rules pretty much stay the same as when you belonged to the UK VAT OSS.
- For B2B, use the reverse-charge mechanism if the other business is also VAT-registered
- For B2C, charge the local VAT rate of wherever your customer is based
- Collect two pieces of customer location evidence, which you keep on record for 10 years
- Send detailed invoices, which you keep on record for 5 years
- File quarterly returns
For more in-depth instructions on all of the points, you can check out our post “What you must know about EU VAT if you have customers in Europe” or our guide to EU VAT for digital taxes.
And for an idea about how to handle EU VAT compliance automatically, scroll to the bottom of this post!
What to do if you sell physical products
After Brexit, selling goods to the European Union counts as exporting.* So, you must be sure to adhere to Great Britain’s rules about exports and the EU’s rules about imports.
*Attention for businesses in Northern Ireland! Northern Ireland will have a special trading status, with dual participation in the UK and EU VAT, Customs Union and Single Market for goods only.
Apply for an EORI number
To conduct exports to the EU, you’ll need an EORI number — or an Economic Operators Registration and Identification number. Official, right?
If you don’t have one, you may have increased costs and delays. For example, if HMRC can’t clear the customs and move your goods onward, you may have to pay storage fees.
Apply for an EORI number right away, and you should receive it in about a week.
*Northern Ireland businesses should also apply for an EORI number that begins with XI. This is for trading goods with non-EU countries. That means you will have two EORI numbers, one that starts with GB and one that starts with XI.
It takes 5 to 10 minutes to apply for the XI number and you should receive it within 4 working days.
Finally, if you’re mailing products yourself by post, learn how to properly send exports from the UK.
Declare exports to the EU
From 1 January 2021, you’ll need to make customs declarations when exporting goods to the EU. These rules currently apply to exporting goods to the rest of the world, including Switzerland, Norway, Iceland and Liechtenstein.
The UK government offers resources for how to handle this:
Consider EU VAT, import rules and fees
Are you storing inventory in the EU? Then EU VAT applies!
In the EU, if you keep your stock in a country, you have an obligation to register for VAT there. Amazon Fulfillment centers and any other third-party warehouses count. There are no tax registration thresholds for you in this case; the physical presence of your business operations automatically qualifies you for VAT. (If your stock is in several EU countries, then you must register separately in each member state where it’s held.)
Once registered, you need to follow all the EU distance selling rules. And there are quite a few.
*Northern Ireland businesses, thanks to their special intracommunity status, don’t need to re-register for EU VAT. Instead you should do the following:
- put an “XI” prefix in front of your existing VAT number when communicating with an EU customer or supplier (your invoices will show an XI number ahead of your VAT number. for example, XI 123456789 - instead of GB)
- complete an EC sales list when selling goods from Northern Ireland to VAT registered customers in the EU.
Not storing anything in the EU? Okay! But even if you don’t need to register for EU VAT, the tax is still in the picture! Some VAT import fees, like a customs or duty tax, might apply to the transaction. So even if your business isn’t financially responsible for these, you should know that your customer is.
Mind your B2B customers
The EU business importing your goods needs to be ready! They should have also prepared for post-Brexit trading.
Before sending the business your products, check they can make the necessary import customs declarations. They’ll also need a licence or certificate to import certain types of goods, such as alcohol or some animal products.
Inform your B2C customers
European shoppers might have to pay VAT import tax upon delivery. You should give them a heads up about this fee before hand, because the surprise fee can make for a pretty unpleasant customer experience — and you don’t want that to reflect on your brand.
So, figure out if import VAT applies to your products, then find a way to set expectations with your customers to avoid any frustration down the line!
What can help you handle EU VAT after Brexit
The best way to simplify this EU VAT craziness is to use a cloud-based accounting tool that automates the entire process — from charging the correct VAT rate to collecting payment to issuing the proper invoice. All of your records are kept safely online for you, even if your computer crashes.
Quaderno handles all of this tax compliance for you, so that you can spend your time focusing on dominating the European market — on bettering your product, getting to know your customers, taking care of your employees, or whatever else matters more than fretting over tax technicalities.
In fact, Quaderno can do all of the following:
- Calculate the right amount of tax to charge each customer, right on your checkout page.
- Automatically verify the VAT numbers you receive from customers.
- Collect and store the customer location evidence that you need to get from every sale.
- Create and send invoices in multiple languages and currencies.
- Send VAT invoices automatically.
- Ensure you never overpay on your VAT returns.
- Notify you when any tax policies or tax rates change, so that you’re always in the loop.
And that’s only how Quaderno can help with EU VAT. When it comes to other sales taxes around the world — or simply everyday billing and accounting — Quaderno jumps through the hoops for you and presents your business data in a way that’s easy to understand. Sign up for a free 7-day trial and see how Quaderno can do the dirty work for you.
Note: At Quaderno we love providing helpful information and best practices about taxes, but we are not certified tax advisors. For further help, or if you are ever in doubt, please consult a professional tax advisor or the Tax Agency.