VAT on sales to Britain after the Brexit

Britain became a third country from VAT perspective

From 1 January 2021, Britain became a so-called third country outside the EU in terms of customs, VAT, foreign trade law and statistics. Goods must be placed under an export customs procedure in the European Union. This can be done on behalf of the customer by a customs agent, the parcel delivery service, or even by the customer itself.


VAT rules on export to Britain

From a VAT perspective, Section 98 of the VAT Act is applicable in the case of exporting products. This means that the sale of a product dispatched domestically outside the territory of the European Union is exempt from vat.

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The condition to this is that the product needs to leave the territory of the Community

  • right at the time of the sale,
  • but no later than 90 days after the date of performance.

If the goods don’t leave immediately, then those mustn’t be used for their intended purpose or otherwise utilized, excluding testing and trial production.

You need to evidence the proof of dispatch by a certificate of exit from the customs authority. The exporter will receive this certificate from that particular electronic system which placed the goods under the customs export procedure.

If the above conditions are met, then the Hungarian business can issue a VAT-free invoice, referring to Section 98 of the VAT Act.

The goods shipped in Great Britain needs to be placed under an import customs procedure by a customs agent or parcel delivery service. The treatment of goods in the country of destination will be subject to customs and vat rules in the. Make sure you have the correct paperwork for the type of goods you are trading. For more information on this, read the guidance on GOV.UK available from here: https://www.gov.uk/guidance/eu-business-exporting-to-the-uk

VAT rules on export to Northern Ireland

The rule is different if the seller sends the shipment to Northern Ireland. Still, after the end of the Brexit transition period, supplying goods to this area is classed as Community sales for customs and VAT purposes. This means that there is no need to place the goods under a customs procedure. However, in this relation, if you send the supplies to businesses, then B2B rules are applicable and this will govern the place of supply. Generally speaking, in this case, the reverse vat charge method is applicable. On the other hand, if the sale was a B2C supply then the transaction is vatable on the basis of the distant selling rules.

Exceptions may be made only to sales to the Member States to which

  • the seller does not sell the excise goods, and
  • the volume of sales to that Member State in the current year or the preceding year may not exceed the applicable threshold.

For Northern Ireland, this threshold is £70,000.

So this means if the annual value of your distance sales into Northern Ireland is less than the distance selling threshold, you charge VAT at the rate that applies in your own country. You will also account for the VAT in your own country. Registration into the Norther Ireland VAT system is optional under the threshold.

If the seller doesn’t want to register for VAT in Northern Ireland, then it needs to invoice with Hungarian VAT. Upon reaching the particular threshold, the vat registration in the destination country is obligatory.

Upcoming change on 1 July 2021

However, the situation will change on 1st July 2021 with the extension of the Mini One Stop Shop scheme. The expected change will extend the MOSS scheme to include all intra-EU B2C supplies including intra-EU distance sales. This change will lead to the abolishment of distance selling thresholds. More detail on this can be found here: Modernising VAT for cross-border e-commerce.

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