VAT implications of Brexit
With the possibility of a hard-Brexit looming, businesses based in Ireland need to take stock of what this could mean for their business.
A key area of concern for many Irish businesses will be the impact Brexit will have on VAT, particularly where there is a “no deal” scenario. Invoicing and reporting procedures for cross-border transactions will change, as will processes and systems, all of which may result in an additional cash flow cost and also increased administration and compliance costs for Irish businesses trading with the UK.
Imports and exports
Currently, transactions between businesses in Ireland and the UK are treated as intra-Community transactions and VAT is charged on a reverse charge basis. This means that the purchaser must self-account for the VAT as if he or she had made the supply themselves, which generally results in a VAT neutral transaction (for fully VATable activities) as businesses can immediately reclaim the VAT charge.
Following Brexit, the UK will become a “third country” (non-EU) for VAT purposes and all supplies to and from the UK will be treated as exports and imports as opposed to intra-community supplies and acquisitions.
Generally, where goods are imported into Ireland from non-EU countries, VAT is applied at the point of importation. VAT is applied to the total cost price of the goods to include customs duty, excise duty and transport costs. Imported goods are liable to VAT at the same rate as applies to similar goods sold in Ireland. Importantly, businesses should note that imported goods will not be released by the authorities until the VAT liability has been paid unless a deferred payment account is in place.
However, following the enactment of the Brexit Omnibus Bill, businesses importing goods from the UK may continue to benefit from accounting for VAT on the reverse charge basis subject to regulations to be issued by Revenue in due course.
Goods supplied to the UK following Brexit will be deemed to be exports. The VAT rate applicable to exports from Ireland to non-EU countries is 0%.
VAT registration
Certain simplification measures exist in the EU to reduce the administration and compliance burdens on cross-border traders including triangulation and the VAT Mini One Stop Shop Scheme (MOSS).
Triangulation involves two supplies of goods between three VAT-registered traders in three different EU member states and enables the avoidance of VAT registration by a middle supplier. Following Brexit, the UK will no longer be able to benefit from this measure and Irish-based business will be required to register for VAT in the UK where the UK business is a middle supplier.
MOSS reduces the administrative burden and cost on businesses for the supply of telecommunications, broadcasting and electronic (TBE) services to non-taxable customers. Use of the scheme allows businesses to only have to register for VAT in one EU member state rather than each of the member states it is supplying services to. Following Brexit, it is likely that Irish businesses selling TBE services to customers in the UK may no longer be able to avail of MOSS in respect of their UK customers and will have to charge Irish VAT at the current standard rate of 23% which may put such supplies at a competitive disadvantage.
Distance selling
Distance selling occurs when goods are supplied to a private consumer in another EU member state. Where the sales exceed a certain threshold, the supplier must register and account for VAT where the consumer is located.
Following Brexit, the distance selling thresholds will no longer apply in relation to the supply of goods from Ireland to the UK and visa versa. Instead, all sales from the UK to Ireland and other EU Members States will be subject to import VAT and customs duties by the customer.
VAT refunds
Currently, an Irish registered business who has paid VAT in another EU member state can claim the VAT back from the other EU member state under the Electronic VAT Refund (EVR) scheme.
Following Brexit, UK VAT incurred by Irish businesses can no longer be claimed using the EVR scheme. Instead, Irish businesses will have to use the 13th VAT Directive Claim procedure which is a much slower process compared to the EVR. Again, this will impact SMEs in particular as they struggle to adjust their cash flows.
Irish Government Brexit proofing
A major focus of Budget 2019 was on how Ireland was getting Brexit ready and what measures the government was putting in place to protect Ireland from the negative economic impact of Brexit.
A new €300m Future Growth Loan Scheme for SMEs was announced in Budget 2019. The scheme will provide long-term loans to businesses at competitive rates. It is in addition to the Brexit loan scheme launched in March 2018. The Brexit loan scheme is aimed at Irish SMEs importing and exporting goods with the UK and provides loans of between €25k to €1.5m available at a maximum interest rate of 4%.
In conclusion
Irish businesses should review their strategy with regard to the likely impact of Brexit on their business and try to minimise any negative VAT impact as much as possible.
A key area of concern for many Irish businesses will be the impact Brexit will have on VAT, particularly where there is a “no deal” scenario. Invoicing and reporting procedures for cross-border transactions will change, as will processes and systems, all of which may result in an additional cash flow cost and also increased administration and compliance costs for Irish businesses trading with the UK.
Imports and exports
Currently, transactions between businesses in Ireland and the UK are treated as intra-Community transactions and VAT is charged on a reverse charge basis. This means that the purchaser must self-account for the VAT as if he or she had made the supply themselves, which generally results in a VAT neutral transaction (for fully VATable activities) as businesses can immediately reclaim the VAT charge.
Following Brexit, the UK will become a “third country” (non-EU) for VAT purposes and all supplies to and from the UK will be treated as exports and imports as opposed to intra-community supplies and acquisitions.
Generally, where goods are imported into Ireland from non-EU countries, VAT is applied at the point of importation. VAT is applied to the total cost price of the goods to include customs duty, excise duty and transport costs. Imported goods are liable to VAT at the same rate as applies to similar goods sold in Ireland. Importantly, businesses should note that imported goods will not be released by the authorities until the VAT liability has been paid unless a deferred payment account is in place.
However, following the enactment of the Brexit Omnibus Bill, businesses importing goods from the UK may continue to benefit from accounting for VAT on the reverse charge basis subject to regulations to be issued by Revenue in due course.
Goods supplied to the UK following Brexit will be deemed to be exports. The VAT rate applicable to exports from Ireland to non-EU countries is 0%.
VAT registration
Certain simplification measures exist in the EU to reduce the administration and compliance burdens on cross-border traders including triangulation and the VAT Mini One Stop Shop Scheme (MOSS).
Triangulation involves two supplies of goods between three VAT-registered traders in three different EU member states and enables the avoidance of VAT registration by a middle supplier. Following Brexit, the UK will no longer be able to benefit from this measure and Irish-based business will be required to register for VAT in the UK where the UK business is a middle supplier.
MOSS reduces the administrative burden and cost on businesses for the supply of telecommunications, broadcasting and electronic (TBE) services to non-taxable customers. Use of the scheme allows businesses to only have to register for VAT in one EU member state rather than each of the member states it is supplying services to. Following Brexit, it is likely that Irish businesses selling TBE services to customers in the UK may no longer be able to avail of MOSS in respect of their UK customers and will have to charge Irish VAT at the current standard rate of 23% which may put such supplies at a competitive disadvantage.
Distance selling
Distance selling occurs when goods are supplied to a private consumer in another EU member state. Where the sales exceed a certain threshold, the supplier must register and account for VAT where the consumer is located.
Following Brexit, the distance selling thresholds will no longer apply in relation to the supply of goods from Ireland to the UK and visa versa. Instead, all sales from the UK to Ireland and other EU Members States will be subject to import VAT and customs duties by the customer.
VAT refunds
Currently, an Irish registered business who has paid VAT in another EU member state can claim the VAT back from the other EU member state under the Electronic VAT Refund (EVR) scheme.
Following Brexit, UK VAT incurred by Irish businesses can no longer be claimed using the EVR scheme. Instead, Irish businesses will have to use the 13th VAT Directive Claim procedure which is a much slower process compared to the EVR. Again, this will impact SMEs in particular as they struggle to adjust their cash flows.
Irish Government Brexit proofing
A major focus of Budget 2019 was on how Ireland was getting Brexit ready and what measures the government was putting in place to protect Ireland from the negative economic impact of Brexit.
A new €300m Future Growth Loan Scheme for SMEs was announced in Budget 2019. The scheme will provide long-term loans to businesses at competitive rates. It is in addition to the Brexit loan scheme launched in March 2018. The Brexit loan scheme is aimed at Irish SMEs importing and exporting goods with the UK and provides loans of between €25k to €1.5m available at a maximum interest rate of 4%.
In conclusion
Irish businesses should review their strategy with regard to the likely impact of Brexit on their business and try to minimise any negative VAT impact as much as possible.
