The United Kingdom left the European Union (EU) on 31 January 2020. As a result, many accounting transactions have to be reassessed. This is especially true for VAT.
Brexit and transitional arrangements
After lengthy negotiations, the United Kingdom left the EU on January 31, 2020. Initially, a transition period was agreed: until 31 December 2020, the United Kingdom would continue to be treated as an EU member state. Among other things, this led to tax and accounting simplifications.
As of January 1, 2021, the United Kingdom is no longer part of the EU single market and the EU customs union. The consequences for companies in Europe are far-reaching, especially in the movement of goods. Not every entrepreneur is aware of this. Some important points are pointed out below. However, companies that operate across borders should contact their tax advisor and have them check what adjustments need to be made to their accounting. The consequences for various business transactions are complex and mistakes can lead to the denial of tax exemptions.
Balance sheet simplifications will be abolished from 2021
After the end of the transitional period, numerous aspects of the accounting of many companies will have to be reassessed. For example, subsidiaries of companies domiciled in the United Kingdom based in Germany can still be included in the consolidated financial statements and group management report of the parent company for the 2020 financial year and can themselves be exempted from the preparation of annual financial statements and management reports. However, since 1 January 2021, this no longer applies and corresponding facilitations can no longer be claimed.
VAT changes due to Brexit
Many German companies maintain business relationships with British customers and suppliers. Accounting is therefore now facing new challenges, especially with regard to VAT peculiarities. In a comprehensive letter, the tax authorities have commented on the consequences of Brexit (Federal Ministry of Finance, letter of 10 December 2020, III C 1 – S 7050/19/10001 :002) and explained, for example, the new VAT regulations for mail order companies or practical questions for continuous services.
Important: Special regulations apply to Northern Ireland: Northern Ireland will continue to be treated as if it were part of EU territory for the purposes of VAT on the movement of goods. The background to the special regulations is the movement of goods between Ireland and Northern Ireland, which could otherwise lead to considerable conflicts due to Brexit. Therefore, from 1 January 2021, Northern Ireland VAT numbers will contain the country code “XI”.
VAT on deliveries of goods from 2021 onwards
Until December 31, 2020, many companies still benefited from the transition period. If, for example, goods were delivered to Great Britain by a German company, this was treated as a tax-exempt intra-Community supply under the conditions of sec. 4 no. 1b of the German VAT Act in conjunction with sec. 6a of the German VAT Act. The buyer paid tax on the intra-Community acquisition, the supplier pointed out the tax exemption in the invoice and submitted a so-called recapitulative report in accordance with sec. 18a of the German VAT Act. Since January 1, 2021, this no longer applies: now it is a tax-free export supply.
Observe new documentation requirements after Brexit
Some entrepreneurs may now think: Tax-free remains tax-free – nothing has changed. But it’s not quite that simple: different requirements apply to a tax-free intra-Community supply than to a tax-free export supply. For example, companies must now also comply with other obligations to provide evidence. Until 31 December 2020, a valid VAT identification number was crucial and confirmations of arrival and receipts, such as shipping receipts, invoices, etc., had to be kept. Now companies must participate in the so-called ATLAS procedure and keep the so-called exit note.
The entrepreneurial status of a company based in the United Kingdom must now be proven by means of a confirmation from British tax authorities.
The regulations for third countries now also apply to the taxation of services. The reverse charge procedure may also have to be observed here.
Import VAT and input tax refund procedure
And if goods are delivered from Great Britain to Germany? In this case, there is no longer an intra-Community acquisition, but import VAT must be paid (exception: Northern Ireland). The consequences of Brexit must also be taken into account in the input VAT refund procedure. Here, a distinction is made between third country and EU member state in terms of requirements. In addition, it should be noted that a shortened deadline applies in the input VAT refund procedure with third-country status. Information on this is also available on the homepage of the Federal Central Tax Office.
Result
The accounting department regularly has to deal with complex VAT issues. For example, the implementation of the VAT digital package on 1 July 2021 is also raising numerous practical questions about cross-border mail order. With Brexit, the complexity of VAT has increased again for many companies as a whole and the accounting department must critically review all procedures and processes. Know-how about the current developments is important for this. Companies that do not employ their own experts on the subject should therefore urgently seek advice in order to organise their accounting in a legally secure manner even after Brexit.
As a service partner for BPO in finance and accounting, ICS adminservice has a team of experts and is already implementing the consequences of Brexit for customers. Are you already accessing or thinking about external support in finance and accounting? Feel free to talk to ICS adminservice.
Image source: Pixabay, Photographer: feworave
Author
Sylvia Meier
Guest Author
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