In the new year Brexit will become a reality. For companies that trade with the UK this will mean some changes to how goods and services are handled in the accounts and for tax purposes. Here we run through the special rules that will apply.
Supply and invoicing of services
The liability to pay taxes for services within the EU arises when the service is provided. This means that if you provide a service in 2020, it must be reported in the VAT return for 2020 and an EC Sales List (ESL) must be submitted for the same period.
When invoicing services to other EU countries in advance, you must report the advance when you receive the payment. Some special situations will arise due to Brexit. For example, payments received in 2020 must be reported as EU trade, whereas payments received after the year-end shall be viewed as payments from a non-EU country. One tip here is to review the payment terms on invoices sent at the end of 2020/2021 with your customers to make sure there are no queries.
If you have a customer whom you invoice both for work carried out before the end of 2020 and in advance for work expected to be carried out after 31 December 2020, we recommend that you invoice these two elements separately to make it easier to process your VAT.
Supply of goods
With the supply of goods, it is the supply date that determines when the liability to pay tax arises. If you sell goods that are sent in December 2020 but reach buyers in the UK in January 2021, they must be reported with EU VAT and declared in January. The same applies in the opposite direction; i.e. if you buy goods from sellers in the UK, they are reported as EU purchases provided that they are sent by the seller in December.
Note that ESLs cannot be submitted for January onwards. The exception is Northern Ireland, which is described in more detail below.
Special rules for Northern Ireland
Please note, however, that trade in goods between the EU and Northern Ireland will continue to be viewed as EU trade after the year-end. These sales shall therefore be subject to EU VAT and be reported in the ESL. In order to process this when reporting VAT, companies in Northern Ireland will be assigned special VAT numbers for trade in goods with the EU. These numbers will be the same as before, but the prefix “GB” is being replaced with “XI” and the numbers can be verified via the VIES link.
Note that sales and purchases of services from and to Northern Ireland will follow the same rules as for the rest of the UK.
VAT refunds from the UK
EU rules on VAT refunds will apply in and for Northern Ireland after the transition period for VAT on purchases of goods or imported goods. You can, therefore, apply for refunds via the Swedish Tax Agency website even after the year-end.
For the rest of the UK, you can apply for VAT refunds relating to 2020 via the Swedish Tax Agency’s digital service up to and including 31 March 2021. It will also be possible to apply for refunds after that date, but only via a paper form.
Do you need help and guidance on Brexit and the rules that apply? Do not hesitate to contact us