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When you import from, or export to, countries in the EU, you generally don’t have to worry about VAT or customs duties. That may change when the UK leaves the EU at 11pm on 29 March 2019.

It’s possible that the UK will leave the EU automatically by operation of the law (having triggered Article 50) with no withdrawal agreement in place. In that case the UK will immediately be treated as a third country in relation to the EU for all trading purposes, including for customs duties and VAT.

For imports, the VAT will have to be paid at the border before the goods can enter the UK. Similarly, your EU customers will have to pay VAT at the border when they buy goods from your company which is based in the UK.

Exporting is more complicated. For example, to ship goods into the EU your business will need an EORI number, and the commodity code for the goods. You may also need a special licence to move the goods, particularly for food or animal products, and tariffs may be imposed under world trade organisation (WTO) rules.

If all your overseas business is currently done with customers or suppliers in other EU countries, you will need to quickly get to grips with VAT on imports and exports and the customs procedures required. HMRC has recently written to businesses in your position, with advice on where to look for guidance on those issues. There are nine detailed Gorvernment guides on importing and exporting procedures that will come into force if there is no deal on the withdrawal from the EU which you can read here: https://tinyurl.com/NodealBRImEx

Businesses that sell digital services (eg, ebooks) to non-business customers in other EU countries need to account for the VAT due at the rate applicable in the country where the customer belongs. This rule currently applies to any amount of digital sales made, there is no de minimis threshold.

The VAT charged to those overseas customers must be reported through the VAT MOSS system for each calendar quarter, unless the business is going to register for VAT in each separate jurisdiction that is sells within.

The good news is that a minimum sales threshold of €10,000 (£8,818) is being introduced from 1 January 2019 for digital services sold to consumers into other EU countries. A business can ignore the VAT MOSS rules if the value of its digital services sold to overseas customers in the calendar year is below that threshold, and the sales for the preceding year were also under that threshold. The business will have to apply the VAT rules of its home country to any sales it makes.

The bad news is that this de-minimis sales threshold only applies to businesses which are located within an EU country. When the UK leaves the EU on 29 March 2019, unless the VAT MOSS rules are covered in the EU withdrawal agreement, the new sales threshold will disappear for UK businesses. UK businesses will then have to register for the VAT MOSS non-EU scheme in an EU member state.

The new making tax digital (MTD) rules will require most VAT-registered businesses to keep all their VAT data as digital records, and submit VAT returns to HMRC using MTD-compliant software. This will apply for VAT periods starting on and after 1 April 2019.

In theory there should be no human cutting and pasting, or retyping figures, at any stage between the initial recording of the transaction and the submission of the VAT return. All transfers of data between different software packages should be via digital links, which can be as complex as a suite of accounting software, or as simple as spreadsheet figures automatically read into an accounting package.

The digital links can stretch between your business and our firm using cloud-based software. Transferring the VAT data as a spreadsheet attached to an email, or on a data stick, will also count as a digital link.

HMRC realise that there is not enough time to redesign all accounting systems to insert digital links where there are currently manual stages, so the use of digital links will not be compulsory until April 2020. However, it will be necessary to use accounting software to submit the VAT return to HMRC using an application programme interface (API) for VAT periods starting from April 2019.

An API is like a delivery van which carries data to HMRC and back to the business. HMRC’s computer will receive the VAT return, then send an acknowledgment back to the business through the API.

VAT-registered businesses with annual turnover under the VAT registration threshold (currently £85,000) won’t have to enter the MTD regime until their annual turnover reaches that threshold. If your business will be required to use MTD for VAT you should shortly receive a letter from HMRC setting out what you need to do.

Please talk to us if you are concerned about how to comply with the digital recording and the VAT return submission processes required under the MTD regime.

Self-employed individuals pay two types of national insurance contributions (NIC); class 2 at a flat rate of £153.40 per year if annual profits are at least £6,205, and class 4 which is calculated as 9% of profits above £8,424, reducing to 2% of profits above £46,350.

Class 2 NIC buys entitlement to the state pension and certain other benefits; class 4 NIC buys no such entitlements.

The Government had proposed merging classes 2 and 4 NIC. The self-employed would pay one class of NIC, which would provide state benefit entitlements, and a NIC credit given for profits between £6,205 and £8,484. However, it has now decided not to go ahead with that merger.

This is good news for those with profits of less than £6,205, as they can continue to pay class 2 NIC voluntarily at £153.40 per year, to accrue state pension entitlements. The alternative for those with very low profits would be to pay class 3 NIC of £761.80 per year, but class 3 NIC doesn’t provide entitlement to other state benefits.

Non-resident individuals, who previously lived in the UK for at least three years and paid NIC during that time, will be able to pay class 2 NIC on a voluntarily basis to build entitlement towards the UK state pension and other benefits.

If you have owned your commercial building for 20 years or more, you should review its VAT status. Such older buildings won’t have VAT attached to their sale or rent, unless the owner or leaseholder has opted to apply VAT, the so-called “option to tax”.

So ask yourself these questions about your commercial property:

• Have you ever made an option to tax on this property?
• If you opted to tax, can you prove that? The evidence would be a copy of form VAT1614 and acknowledgment from HMRC.
• If you opted to tax the building more than 20 years ago, is it now appropriate to revoke that election?

You will need quick answers to all of these questions if you want to sell the property, as the buyer’s legal team will certainly ask for evidence that VAT on the sale is being correctly charged. Not all businesses can recover VAT, so some purchasers will want to buy or lease a building which doesn’t have VAT added to the price.

If you think an option to tax is in place, but you don’t hold the evidence, you could write to HMRC asking for a copy of the election. However, HMRC will take weeks to reply, and when the election was made many years ago they may not have the paperwork either.

If you have never let the property, and it was acquired with no VAT charged on the purchase, it’s probably safe to assume that an option to tax has never been made.

A common misunderstanding is that once a property is the subject of an option to tax it remains an “opted property” when it is sold. This is not the case. Each subsequent owner can make an independent decision as to whether to opt to tax the building or not.

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Clarke Nicklin House, Brooks Drive, Cheadle Royal Business Park, Cheadle, Cheshire, SK8 3TD. Registered Number OC309225.
The firm is registered to carry on audit work in the UK & Ireland. Details about our audit registration can be viewed at www.auditregister.org.uk under reference number C001178544. The professional rules applicable are the Audit Regulations and Guidance which can be found at www.icaew.com/regulations, and the International Standards on Auditing (UK and Ireland) which can be found at www.frc.org.uk/apb/publications/isa.cfm.