2. VAT handling for UK Exports and Imports from 1st January 2021

This support note applies to axis diplomat 2016 and above only. Systems running software older than this will not receive software updates and will need to manually review any changes they need to make to their data to handle the end of the Brexit transition period.

The information in this support note focuses on those systems with a UK base VAT registration. For those data sets with a non UK base VAT registration, please refer to our separate support note Non UK axis diplomat systems and Brexit.

The UK Brexit transition period will end at 23:00 31st December 2020. At that time the UK is leaving the EU VAT regime with new rules applying to the treatment of VAT for supplies to and from the EC.

This means that trade with EC member states will be treated in the same manners as exports and imports to and from non EC member states.

HMRC have provided extensive information regarding the treatment of the movement of goods in and out of the UK through both direct communications with UK businesses and via GOV.UK.

The development teams at axisfirst have been monitoring and reacting to all of the relevant information over the past months and have been updating the axis diplomat software to correctly account for transactions conducted with EC member states from 1st January 2021. 

This support note details those changes and any actions that axis diplomat users will need to take to correctly record transactions with EC and non EC customers and suppliers from 1st January 2021.

Releases of axis diplomat 2016 and above from 11th December 2020 onwards contain all of the functionality described below. Please ensure that you have installed up to date software prior to 31st December 2020 to ensure that your software includes the latest developments.

There is still a possibility that further announcements will be made between now and 1st January 2021 which will require software changes and, if required, these will be released and announced to our customers as appropriate.

A new axis diplomat supervisor function, Maintain Brexit Settings, has been provided to allow a system to be flagged for the departure of the UK from the EU VAT regime and to specify the start date for the application of the new VAT rules applicable to UK import and export trade with the EU and the rest of the world.

In order to handle any last minute change to the arrangements for 1st January 2021, upon loading this function, axis diplomat attempts to pick up the current date of the start of the new VAT rules from a central server maintained by axisfirst. The software is configured to use a default date of 1st January 2021 and this will only change if axis diplomat can successfully download the new settings from the axisfirst server.

It is strongly recommended that this function is used to check the date configured on your axis diplomat system is correct prior to entering any transactions on 1st January 2021.

Goods sold outside of the UK from 1st January 2021 will be treated as Exports irrespective of their country of destination.

axis diplomat has been modified to recognise where a sales order is to be supplied from a UK VAT registration to a customer outside of the UK and treat it as an export, zero rating the sale for VAT, even if the customer is set with an Account Classification of EC Export Customer.  This means that axis diplomat users will not need to amend their customer account classifications for 1st January 2021.

For those customers with the Multiple VAT Registrations feature or with a non-UK based VAT registration country, axis diplomat will apply the VAT supply rules for the applicable VAT registration. This means that sales made using a European VAT registration will continue to treat sales to other EC countries under the European VAT Regime but sales to the UK from that registration will be treated as non EC Exports without needing to change the customer account classification.

Customers with the Multiple VAT Registrations feature whose base VAT registration country is the United Kingdom should continue to classify their customer accounts in accordance with the settings required for UK VAT handling. 

For data sets without Multiple VAT Registrations where the VAT registration country remains within the EU, it may be desirable to amend UK customer account classifications to 'Non EC Export Customer' from 1st January 2021 so that the database reflects the fact that the United Kingdom is no longer in the EU.

In line with HMRC requirements. from 1st January 2021 only intra-community dispatches of goods and related costs (excluding VAT) from Northern Ireland to EU Member States will be reported in Box 8 for UK VAT returns.

Prior to the end of the transition period, VAT-registered businesses applied VAT through the EU reverse charge on intra-community acquisitions.

From 1st January 2021, imports from EU countries will be subject to the same rules as those applied to imports from non-EU countries.

axis diplomat has been modified to treat purchase invoices and credit notes from suppliers with an account classification of EC Member State as imports if the VAT registration country is United Kingdom. For users of the Multiple VAT Registrations feature, the user is able to select against which registration they are booking purchase transactions. Supplier account classifications do not need to be updated however those users running axis diplomat data sets with an EU based VAT registration may wish to reclassify their UK supplier accounts to Non EC Member State for clarity.

In line with HMRC requirements. only intra-community acquisitions of goods and related costs (excluding VAT) made in Northern Ireland from EU Member States will be reported in Box 9 for UK VAT returns.

Postponed VAT Accounting

Prior to 1st January 2021, VAT on goods imported from non-EU countries is payable upon import and must be paid before goods can be released from customs.

In order to assist with cash flow for UK businesses, the UK government has introduced the postponed VAT accounting system.

For businesses making use of this scheme, this allows the importer to account and pay for Import VAT on their next VAT Return rather than paying at the point of entry, meaning the goods can be released from customs without the need for payment of VAT due. Information on how to process postponed VAT accounting transactions in axis diplomat for inclusion in your MTD VAT Return is available in our Postponed Import VAT support note.

VAT on imports of £135 and under

From 1st January 2021, the UK is also introducing additional measures for overseas goods arriving into Great Britain from outside the UK:

Low Value Consignment Relief (LVCR) is being removed. Previously, this exempted imports with a value below £15 from import VAT.

Where online marketplaces are involved in facilitating a sale to the UK, the online marketplace will be responsible for collecting and accounting for the VAT.

VAT on imports with a consignment value of £135 or lower will have VAT applied at the point of sale, rather than applied as import VAT at customs.

For B2C transactions this UK VAT will be charged and collected by the seller meaning that sellers sending goods into the UK will need to charge UK VAT and apply to be part of the UK VAT system when supplying goods with a value of £135 or less to end consumers (that is, non-VAT-registered individuals).

For B2B transactions the VAT will be reverse charged to the customer meaning that businesses who receive goods of £135 or less will have to account for the VAT as part of the reverse charge procedure, declaring the VAT on their next VAT Return. axis diplomat purchase invoice and credit note booking functions have been modified to allow selection by line between Reverse Charge and Import for lines flagged as Goods and Directly Related Services for non UK supplier transations, defaulting to Reverse Charge if the net invoice value is £135.00 or below.

When ordering goods from outside of the UK, you should ensure the seller knows your VAT number or the seller will have no choice but to treat it as a B2C sale and apply VAT. The Company VAT registration number field is available to Document Designer Purchase Orders.

A new Dealing With VAT in axis diplomat from 1st January 2021 support note has been published to include the changes to how VAT return transactions are handled from 1st January 2021.

EC Sales Lists and Intrastat Declarations are statutory reporting requirements in EU member states, subject to individual state thresholds.

EC Sales Lists and Intrastat dispatches declarations are no longer required for goods exported from Great Britain (England, Scotland and Wales) to the EU from 1st January 2021.

Intrastat arrivals declarations for goods imported from the EU into Great Britain are still required for those businesses exceeding the £1,500,000 annual arrivals threshold until 31 December 2021. 

axis diplomat will continue to maintain the functions provided to assist with submitting EC Sales Lists and Intrastat declarations.