Worldwide: August VAT Roundup: Brexit Impact On UK Businesses

Last Updated: 11 September 2018
Article by TMF Group

TMF Group's VAT experts are pleased to bring you a summary of key tax announcements from the past month, including the UK government's latest guidance on VAT and trade.

UK – 'No deal' Brexit implications

The UK government released papers on 23 August 2018 advising people and companies what they need to prepare for, if the UK leaves the EU without a formal agreement in place on 29 March 2019; a so-called 'no deal' Brexit. The UK government does emphasise that this is contingency planning for a scenario they do not expect to happen.

One of the 'no deal Brexit' papers focuses on VAT and trade, which outlines a number of specific changes to the VAT rules and procedures that would apply to transactions between the UK and EU member states. It is a comprehensive notice which we recommend you read, but with regard to the import of goods by UK businesses from the EU:

  • The government will introduce postponed accounting for import VAT on goods brought into the UK, meaning that UK VAT-registered businesses importing goods to the UK will be able to account for import VAT on their VAT return, rather than paying import VAT on or soon after the time that the goods arrive at the UK border. This will apply both to imports from the EU and non-EU countries.
  • Low Value Consignment Relief for parcels with a value of £15 or less will not be extended to goods entering the UK from the EU.
  • VAT will be payable on all goods entering the UK as parcels sent by overseas businesses, unless they are already relieved from VAT under domestic rules. For parcels valued up to and including £135, a technology-based solution will allow VAT to be collected from the overseas business selling the goods into the UK. Overseas businesses will charge VAT at the point of purchase and will be expected to register with an HMRC digital service, and account for VAT due. On goods worth more than £135 sent as parcels, VAT will continue to be collected from UK recipients in line with current procedures for parcels from non-EU countries.

We will of course find out far more detail over the coming months and will keep you informed. Have questions? You can make an enquiry with our VAT team.

Poland - End of the VAT return?

Following much recent speculation, the Polish Ministry of Finance confirmed they are working on legislation that could see the end of the need for VAT returns. 

The tax returns are likely be replaced by Uniform Control Files JPK_VDEK, which Polish companies will be obliged to file to tax authorities on a monthly basis. The files are more commonly referred to as a Standard Audit File for Tax (SAF-T). The files contain all VAT-related information the authorities need to determine whether taxpayers meet their compliance obligations with regard to VAT calculation and settlement. Therefore there is no need to present the authorities with other documents containing the same set of data. The information is submitted in XML format via the website of the Polish authorities.

It is currently expected that JPK_VDEK will replace VAT returns and the current JPK_VAT, no later than the end of 2019.

Russia - VAT rate increase confirmed

The Russian State Duma has approved draft proposals to raise the standard VAT rate to 20%, up from the current level of 18%.

This new rate will come into force on 1 January 2019. The reduced rate of 10% on basic foodstuffs, children's clothes, medicines and periodicals will, however, remain unchanged.

It is hoped by the government that the proposed increase will generate at least an extra RUB 600 bn (approximately €8.2 bn) to government revenue annually.

Germany - Online platform VAT liability

The German Federal Cabinet has approved draft legislation that will introduce a secondary VAT liability for online trading platforms and marketplaces, in cases where third party traders do not declare and pay their VAT liabilities. This would make online platforms like Amazon and eBay jointly liable for the VAT obligations of sellers using their platforms to sell into Germany.

According to a separate release from the Ministry of Finance, the draft law requires online platforms to track and collect information on all third-party sales to German residents and provide this information to the German tax authority. Online platforms will be held liable for any unpaid VAT unless they fulfil the information collection requirements or exclude the non-compliant third-party sellers from the platform.

The legislative process is expected to be completed by the end of the year so that the new regime can enter into force on 1 January 2019.

USA - South Dakota vs Wayfair developments

Following on from the recent landmark US Supreme Court decision in the South Dakota vs Wayfair case, a number of states have announced plans that will require remote sellers to collect sales tax, even if they do not have a physical presence.

The Supreme Court voted 5-4 in favour of South Dakota, and thus that states can require online sellers to collect sales taxes. This reversed a landmark 1992 ruling on Quill Corp. vs North Dakota that said sellers only had to collect state sales taxes if they had a warehouse or office in the state. Modern e-commerce "does not align" with the physical presence required in the 1992 decision, one of the judges wrote. The Wayfair Case saw a proposal that remote sellers attain economic nexus if they make annual sales of more than USD100,000 or make at least 200 separate sales of taxable products or services. If nexus is attained sellers must register for and begin collecting sales tax.

Legislation to introduce the new system on 1 October 2018 has recently been passed in Maine, Maryland (pending ratification) and Washington.

Key takeaways

With tax compliance among one of the biggest challenges for international businesses, failure to adhere to changing local rules such as these poses a notable threat.

If you're VAT registered in Poland, it is likely you will need to convert your usual Excel transaction listing into the Polish SAF-T XML file required by the Polish tax office. Meanwhile, the forthcoming increase in the VAT rate means businesses in Russia will need to plan ahead for adjustments to their ERP systems whilst implementing other changes in order to remain VAT compliant. And if you are a business selling online to consumers in the USA, you will need to establish whether you have attained economic nexus and hence have state sales tax compliance obligations.

Talk to us

Our VAT services team can provide you with support in understanding the changing rules, and what they mean for your enterprise.

Get in touch with us today to find out how we can help, no matter the size or location of your business.

Discover how our accounting and tax services can drive efficiency for our global clients.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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