VAT Rules On Imported Goods From the EU To The UK

Understanding VAT on imports from the EU to the UK is essential for businesses adapting to new post-Brexit regulations. This guide clarifies VAT obligations for importing goods into the UK and provides practical steps for VAT compliance.

Equip yourself with expert advice to navigate importing from the EU to the UK VAT requirements efficiently, ensuring your business remains compliant and competitive.

This guide is specially designed for VAT-registered businesses and UK businesses seeking clarity on post-Brexit VAT changes.

Do I Need To Pay VAT On Imported Goods From The EU?

Yes, businesses need to pay VAT on imports from the EU to the UK. This requirement aligns with the post-Brexit regulations that treat EU imports similarly to those from non-EU countries.

The VAT rate for imported goods is now aligned with standard UK rates, distinct from the varied EU VAT rates applied prior to Brexit.

The standard VAT rate for most goods imported into the UK is 20%, but reduced rates of 5% or even zero rates may apply to specific categories. For example, children’s car seats and domestic fuel or power benefit from the reduced rate, while books and children’s clothing are zero-rated.

When importing goods from the EU to the UK, VAT considerations play a critical role in how businesses plan their imports and budget their operations.

Recent Changes in VAT Legislation

One significant change since Brexit is the introduction of the Import One Stop Shop (IOSS) for VAT for e-commerce businesses. This system simplifies VAT handling for businesses selling imported goods to customers in the UK, provided the consignment value is below £135. Above this value, VAT is collected at the point of importation.

Exceptions and Specific Rules

Certain goods, such as medical supplies and educational materials, continue to enjoy zero-rated VAT, easing financial pressures on the health and education sectors. Meanwhile, luxury items and excise goods like alcohol and tobacco are subject to standard or even higher VAT rates due to their nature. These goods also may require additional customs duties, which can complicate the overall tax burden.

Key Questions About VAT On EU Imports Answered

Do I have to pay Customs Duty and VAT on items shipped from the EU to the UK? 

When importing goods from the EU to the UK, customs duty and VAT are generally payable, depending on the type of goods and their value. Customs duty is not required for goods worth less than £135, but VAT is still due at the point of sale rather than at import. However, this depends on the Incoterms applied. For items over £135, both import duty from the EU to the UK and VAT apply.

For example, importing electronic items worth £500 may attract a customs duty of 2.5% (£12.50) and VAT at 20% (£100), totalling £112.50 additional costs, excluding freight charges. Similarly, clothing valued at £200 could incur a 12% duty (£24) plus VAT (£40), adding £64 to the final price.

For the latest guidelines and further assistance, businesses should consult the HMRC’s resources on paying VAT on imports from outside the UK.

Can I reclaim VAT on EU imports?

Businesses can reclaim VAT on EU imports if they are VAT-registered entities in the UK. To initiate the reclaim, you must ensure proper documentation, such as import VAT statements and import declarations, are meticulously maintained. You can apply to HMRC for a C79 certificate to prove any VAT paid. Typically, claims should be filed during your regular VAT return, but it’s crucial to adhere to the specific timelines dictated by HMRC.

Eligibility hinges on the goods being used for business purposes. A common pitfall is failing to provide comprehensive proof of import and VAT payment, which is vital for a successful reclaim.

How can I avoid customs charges from the EU to the UK?

To minimise or avoid customs charges when importing from the EU, consider adopting these legal strategies and tools:

• Consignment Relief: This strategy is applicable for consignments valued at under £135, excluding shipping and insurance costs. Applying consignment relief can exempt these items from customs duties. However, VAT is still applicable and needs to be paid at the point of sale. It’s essential to ensure that your goods are accurately valued below the threshold to qualify for this relief.
  
  
• Postponed VAT Accounting (PVA): By adopting PVA, you can defer the payment of import VAT until your regular VAT return is due, where you settle it in a VAT declaration. This is particularly beneficial as it aids in improving cash flow by delaying out-of-pocket expenses. To use this scheme, you must be VAT registered and keep detailed records of all imports.
  
  
• Check Tariff Codes: Proper classification of goods using the correct tariff codes is crucial. Tariff codes determine the rate of duty and eligibility for any reliefs or trade agreements. Incorrect coding can lead to excessive duty payments or customs delays. Familiarise yourself with the Trade Tariff Tool available on the UK government’s website to ensure you apply the most advantageous codes.

A good accountant will be able to help you apply these cost-saving measures effectively.

What is the impact of tariffs between the EU and the UK? 

Since Brexit, tariffs have notably altered cost structures for UK businesses importing from the EU, particularly in sectors like automotive, agriculture, and textiles. For example, imported cars that do not meet specific rules of origin might incur a 10% tariff, significantly increasing their overall cost. Similarly, textiles and certain agricultural products, such as dairy and meats, may face variable tariffs based on their compliance with quota regulations and origin rules, directly influencing retail pricing and VAT calculations.

Businesses must thoroughly understand and apply these sector-specific tariffs to adeptly manage additional costs in their pricing strategies. Accurately applying tariffs is essential for maintaining profitability and effectively managing import duty from the EU to the UK.

Do I have to pay VAT when importing services from the EU? 

The VAT treatment for services imported from the EU differs significantly from that for goods. For instance, VAT on digital services like software or streaming content is charged at the place of consumption. Therefore, UK businesses must pay UK VAT.

However, for consultancy services, the reverse charge mechanism applies. This means the UK business receiving the service is responsible for accounting for the VAT as if they supplied the service themselves, potentially allowing for VAT recovery on their return.

Practical Steps To Comply With EU to UK Import VAT Regulations

How To Register for VAT and Get an EORI Number

Registering for VAT and obtaining an EORI number is essential for legally trading goods with the EU and managing VAT obligations. 

Here are the steps you need to follow:

1. Determine Eligibility – Check if your business meets the criteria for registering for VAT. Typically, this is required if your taxable turnover exceeds £90,000 over a 12-month period.
   
2. Apply Online: Visit the UK government’s website to complete your VAT registration. This process will require detailed information about your business and its operations.
   
3. Receive Your VAT Number: Once registered, you’ll receive a VAT number. This is necessary to proceed with the next steps and is crucial for all your VAT transactions.
   
4. Register for an EORI Number: If you plan to trade goods with the EU, you’ll also need an Economic Operator Registration and Identification (EORI number). Apply through the UK government website, ensuring your business details are consistent with your VAT registration.
   
5. Link Your VAT and EORI Accounts: Linking these accounts simplifies customs processes and facilitates easier management of import VAT and customs duties.

How To Calculate Import VAT From EU to UK

To understand how much import VAT from the EU to the UK will cost your business, follow these steps:

1. Determine the Taxable Amount: Calculate the total cost of the goods, including the purchase price, shipping, insurance, and any customs duties. This total is the taxable base for the import VAT.
   
   
2. Add Excise Duty: If applicable, add the excise duty to the total value of the goods. Excise duty is a tax on specific goods like alcohol, tobacco, and fuel, and it must be included in the calculation to get the correct taxable amount.
   
   
3. Apply the VAT Rate: Apply the current VAT rate to the total amount (including the excise duty) to calculate the import VAT. For example, if the total value of the goods plus excise duty is £1,000 and the VAT rate is 20%, the import VAT will be £200 (1,000 x 0.20). Shipping charges add to the final VAT burden.
   
   
4. Review HMRC’s Guidance: For precise VAT calculations and to ensure all costs are included correctly, review the guidance provided by HMRC.

Check out HMRC’s guidance on how to value goods for import VAT for detailed instructions and compliance assurance.

How To Use Postponed VAT Accounting

Postponed VAT Accounting (PVA) is a beneficial system for businesses importing goods from the EU, as it helps manage cash flow by allowing VAT payment deferment.

• Understanding PVA: Instead of paying import VAT when goods arrive, businesses can defer this payment until they file their VAT return. This postponement means the VAT due on imports can be accounted for in the same VAT return that allows for VAT recovery, effectively neutralising the upfront VAT cost if the business is fully VAT recoverable.
  
  
• Benefits: The primary benefit of PVA is improved cash flow. Businesses do not need to pay VAT upfront, which helps maintain liquidity and use funds for other operational needs.
  
  
• Implementation: Businesses must indicate their intention to defer VAT on their customs declaration when using PVA. This selection automatically shifts the VAT accounting to the VAT return rather than at customs.
  
  
• Practical Application: For a business importing electronics from the EU, for example, using PVA means that the VAT due on these goods can be deferred and offset against its VAT reclaim, avoiding significant initial expenditure.

Need Help With Your EU Import VAT Compliance?

Navigating EU import VAT rules can be complex. J Dauman & Co’s VAT experts are ready to assist you in ensuring your compliance and optimising your VAT handling. For detailed guidance, schedule a free consultation with our specialists today and discover how we can help your business thrive.