2021 Brexit Guide for UK VAT (for EU and worldwide Sellers)

Brexit is bringing changes to the world of VAT as of 1 January 2021. UK VAT after Brexit could affect your business if you’re based in Europe, the US, or anywhere around the world.

Now that the UK is leaving the European Union, you need to make some adjustments in your VAT registration for both regions.

Selling digital products after Brexit

This section will tell you how to:

• Wrap up 2020 with your current VAT OSS
• Register for UK VAT as a foreign business
• Comply with UK VAT moving forward
• For non-EU businesses, how to re-register with a new VAT OSS

Finish the 2020 fiscal year with your current EU VAT OSS

This is the last time you’ll include UK sales in your EU VAT return.

The final return period for this year’s VAT OSS system will be the period ending 31 December 2020. You should only include UK sales made before 1 January 2021 in your final return.

File the return, as you usually would, by 20 January 2021.

Register for UK VAT as a foreign business

If you’re selling digital products or services to British customers, you need to register for UK VAT as of 1 January, full stop. You are not allowed to sell digital products to UK consumers (aka private individuals) if you're not registered for UK VAT. There is no tax registration threshold

The one exception to UK VAT registration requirements is for B2B remote sellers. Remote sellers don't need to register for UK VAT if they sell digital products only to businesses and/or professionals (100% B2B). If you think you fall in this category, we recommend ​you confirm your particular case with the HMRC or a professional tax advisor.

The good news is you can likely register online, and it’s not necessary to get an agent or representative to do it for you.

1. Go to the VAT registration page and, under the section "How to Register", click "register online". On the sign in page, you can start the registration process by clicking “create sign in details”. This creates for you a VAT online account (sometimes known as a ‘Government Gateway account’). You need this to submit your VAT returns to HM Revenue and Customs (HMRC), the UK’s tax collections agency.

2. Provide details like your turnover, business activity and bank details.

3. Submit the registration application! Hopefully within 30 days (though it can take longer), you’ll be sent a VAT registration certificate, which will arrive in your online account. This certificate confirms:

   • Your UK VAT number^*

   • Your ‘effective date of registration’

   • When to submit your first VAT Return and payment

     ^*Something tricky. You can’t start displaying or charging VAT on UK sales until you get your VAT number, but you’ll still owe that tax to HMRC. So here’s what they advise you to do while you’re waiting to receive your VAT number:

     “You should increase your prices to allow for this and tell your customers why. Once you’ve got your VAT number you can then reissue the invoices showing the VAT.”

Comply with UK VAT moving forward

From your effective date of registration, you must:

• Charge the right amount of VAT on each UK sale. The standard rate is 20%.
• Show all VAT information on your invoice
• Pay any VAT due to HMRC
• Submit VAT Returns
• Keep VAT records and a VAT account

Note: Most VAT registered businesses that earn over £85,000 must also follow the rules for ‘Making Tax Digital for VAT’. Here’s our own guide on how to follow Britain’s Making Tax Digital guidelines.

As a non-EU business, register for a new VAT OSS

There’s one extra step for non-EU businesses. If you had your EU VAT OSS registration based in the UK, you probably need to pick a new “home country” and re-register in the non-Union scheme.

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. (For links and specific information, you can check out our tax guides per country.)
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.

For more in-depth information, check out this guide about how to register for EU VAT if you aren’t based in the EU.

Note: 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.

Selling physical products to the UK after Brexit

Well, the UK’s tax registration threshold for foreign businesses selling physical goods into the country is £0.00. That means you must register for UK VAT as of 1 January if you plan on making any sales within the United Kingdom.

Register for UK VAT

Unfortunately there’s no online option for you! You must register by post using forms VAT1 and VAT1A.

Hopefully within 30 days (though it can take longer), you’ll be sent a VAT registration certificate, which will arrive in your online account. This certificate confirms:

• Your UK VAT number^*
• Your ‘effective date of registration’
• When to submit your first VAT Return and payment

^*Something tricky: You can’t start displaying or charging VAT on UK sales until you get your VAT number, but you’ll still owe that tax to HMRC. So here’s what they advise you to do while you’re waiting to receive your VAT number:

“You should increase your prices to allow for this and tell your customers why. Once you’ve got your VAT number you can then reissue the invoices showing the VAT.”

Comply with UK VAT moving forward

From 1 January 2021, if the product is shipped into the UK, it's an import. And so import VAT must be declared and paid! It depends on who handles this step.

And these rules are still a bit in flux, but here’s what we understand right now.

B2C transactions:

• Packages worth less than £135 are subject to 20% VAT at the point of sale. You should put all the VAT information on the receipt and keep it in your records.
• Packages worth over £135 are subject to import VAT rules. This means you, the seller, may pay the import VAT (and duties) on clearance, and reclaim them with your UK VAT number. OR your customer may pay at customs or to the delivery service… but they probably won’t be too happy about that surprise fee!

Other general compliance points:

• Submit VAT Returns
• Keep VAT records and a VAT account

Note: Most VAT registered businesses that earn over £85,000 must also follow the rules for ‘Making Tax Digital for VAT’. Here’s our own guide on how to follow Britain’s Making Tax Digital guidelines.

What can help you handle VAT after Brexit

The best way to simplify this 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.

We made a Brexit 2021 Tax Central hub for everything you need to know to stay VAT compliant and make taxes easy as a distant seller to the UK and EU.

Quaderno handles all of this tax compliance for you, so that you can spend your time focusing 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 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 trial and see how Quaderno can do the dirty work for you.