The United Kingdom has left the European Union as of 1st of February, 2020. The exit was followed by an interim period until the 31st of December, 2020. During this period, the EU law continued to apply in the UK and the country remained part of the customs union. In our current newsletter, we provide a brief description of the changes from the 1st of January in the economic regulations between the United Kingdom of Great Britain and Northern Ireland and the countries of the European Union.
Brexit and EU tax numbers – changes after the 1st of January, 2021.
With the UK’s exit from the European Union, Community tax numbers with the prefix GB expired on the 1st of January 2021, and Northern Irish taxpayers have received a new Community tax number, starting with the prefix XI instead of the previous GB.
VAT changes due to the Brexit
Following the 31st of December, 2020 supply of goods to the United Kingdom are subject to the regulations of product export, while for the supply of goods from the UK the regulations of product import have to be applied from a VAT point of view.
If a product shipped from the UK and transported domestically to the customer inventory before the 1st of January 2021, the customer must continue to treat the withdrawal from the stock as an intra-Community acquisition after the 31st of December 2020, and submit VAT return, pay tax accordingly. However, if the stock held in the domestic customer stock until the 31st of December 2020 is returned to the United Kingdom by the British taxable person after that date, the regulations of product export will be applicable.
If the customer stock is located in the UK and the product was transported and stored in the inventory before the 1st of January, 2021, then the actual sale of the product should be considered as an intra-community product sale transaction. However, if a product stored before the 1st of January, 2021 in a customer stock maintained in the United Kingdom is returned to the domestic (European Union) seller after that date, it should already be treated as a product import. However, the import of the product may be exempted from tax because of the rules of reimport.
According to the appendix of the Withdrawal Agreement, Northern Ireland has a special status from a VAT point of view also after the interim period. This special status lasts until 4 years from the end of the interim period, i.e. until 31st of December, 2024. Special treatment means that the community regulations remain applicable also after 31st of December, 2020 in Northern Ireland for product sale transactions, meaning that with regard to product sale transactions Northern Ireland should be considered as a member state of the EU.
However, there is no such separation for services, in this respect, the whole of the United Kingdom should be treated as a third country after the 1st of January 2021. In the case of a supply of services to a taxable person, the determination of the place of performance shall not be affected by the fact that the supplier of the service or the customer of the service is not established in the EU. However, there is a difference between the administration task of these transactions. In case of transactions provided to a taxable person established in the EU the place of performance will be the country where the customer is established (according to the main rule), therefore the submission of the EU transaction report is mandatory, and the proof of the taxable status shall be valid community tax number. There is no such obligation if the customer is established in a third country, and other rules should be applied to the proof of taxable personality.
VAT refund to non-resident taxpayers after Brexit
In absence of a tax refund agreement between the UK and Hungary, the refund of the VAT is not possible for taxpayers in case of transactions performed after 2020. However, Northern Ireland is an exception. Taxpayers established in Norther Ireland can ask for a VAT refund on product purchase from the EU, similar to community taxpayers, and also domestic taxpayers can have VAT refund product purchase from Northern Ireland.
Changes in custom processes after Brexit
In terms of customs, the UK will be treated like any other non-EU country from the 1st of January 2021, but Northern Ireland will continue to be subject to EU customs rules according to the agreement.
Trading transactions between the UK and the EU will be subject to custom process, which means the following:
- customs declaration must be submitted in case any product is transferred to, from, or through Great Britain
- a special permit is needed for the transportation of some defined products (like a waste, certain hazardous chemicals, genetically modified organisms)
- different rules are applicable for transactions with Great Britain than for transactions within the EU and Northern Ireland
The agreement between the European Union and the United Kingdom on preferential handling of trading transactions
From the 1st of January 2021, the free movement of goods between Great Britain and the Union will cease, but after that date, the Agreement will uniformly provide 0% customs duties on goods of preferential origin, which means a kind of duty exemption.
Conditions are the followings:
- preferential origin of the transferred goods must be proven,
- preferential handling must be requested on the customs declaration.
Preferential handling can be requested on the custom declaration when the product is imported, or afterward within 3 years with a request for custom refund or release.
The preferential origin of goods may be proved by community exporters with a statement of origin. If the value of the consignment is not more than 6,000 EUR, the statement can be issued by any exporter. If the value of the consignment exceeds the threshold than the community exporter must have a registered exporter ID number which must be indicated on the declaration. A sample of the declaration is attached to the Agreement, signature is not needed on the form.
We hope you found our summary useful. Should you need more information, please feel free to contact our professionals.
In the meantime, we encourage you to check our other articles on Hungarian taxation questions.