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UK Government Promise
(1973)
“VAT will be a simple tax”
(Anthony Barber
Chancellor of the Exchequer)
The Reality
(since 1973)
“VAT is like a fiscal theme park, in which factual
and legal realities are suspended or inverted”
(Lord Justice Sedley 2001)
The Solution
Promises and reality are often different in Government.
Our mission at VAT Services (Scotland) Ltd is to try to make the reality simple and
understandable for your staff, so that your business or organisation complies with VAT regulations
with as little difficulty as possible. We do this by offering:


  LATEST VAT NEWS

This second article in our Brexit series covers the VAT issues associated with the supply of call-off stock and consignment stock by UK businesses to businesses in the EU.

As explained in our June 2020 news article, which can be accessed HERE, these articles are written in the expectation that the UK will leave the EU, following the end of the transitional period on 31 December 2020, with a ‘no deal’ scenario. In the event of a deal being struck, we will have to examine the exact details of that deal and we will advise accordingly.

Call-off Stock – Pre 31/12/2020
VAT
This relates to a supply of goods from one member state, e.g. the UK, to another member state, e.g. Spain, which creates a stock of goods from which its customer can call off stock, as and when required. It is imperative that the customer in the different member state is known to the seller at the time of arrival of the goods in (say) Spain. Where the customer is not known to the seller, or where there are several different customers, this will be a supply of consignment stock with differing VAT rules applying, as discussed later in this article.

Carrying on the example above in terms of the UK supplier and Spanish customer, albeit that in this instance there is a supply of call-off stock to Spain, this is for use by the Spanish customer, as and when required. On the assumptions that:

  • the goods are dispatched pre 31/12/2020 by the UK supplier;
  • they are supplied to this one Spanish customer; and
  • the Spanish customer takes ownership of the goods in advance of 31/12/2020;

the VAT rules in relation to this dispatch will be as earlier, i.e. zero-rated for VAT purposes. Accordingly, the UK supplier will have no Spanish VAT registration requirement and will raise intra-EU sales invoices for the supplies in line with normal VAT regulations. Please see the section (Dispatches pre 31/12/2020) in the June 2020 news article (see link above).

The VAT rules in place pre 1 January 2020 were such that the time of supply was the date the goods were physically dispatched. However, the rules have slightly changed now.

EU legislation was amended from 1 January 2020 to introduce four ‘quick fixes’ which sought to simplify the VAT procedures for call-off stock held in EU member states (Council Directive 2018/1910).

In order to take advantage of this simplification, the business must ensure the following, that:

  • a call-off stock agreement is in place with the customer;
  • the supplier is removing the goods from the UK to the overseas customer with the intention of supplying those goods to the customer;
  • there are trading agreements and contracts in place to ensure both parties are clear on the VAT procedures regarding stock called-off;
  • the UK supplier does not have a business establishment or other fixed established in the customer’s member state;
  • the customer is VAT registered in that overseas member state and the supplier knows the customer’s identity and VAT registration number;
  • the customer’s VAT registration number in the overseas member state is reported on the UK supplier’s EC sales list;
  • the supplier records the removal of the goods in the register kept;
  • where the customer receiving the call-off stock ceases to trade or deregisters, the UK supplier will require to register for VAT in that EU country and account for domestic VAT there, in the country in which the goods are held/stored. This will not be required if the UK supplier can find an alternative customer in the same EU country; and
  • where goods are not called-off by the customer within 12 months of arrival, the UK supplier will be required to register for VAT in that EU country and account for domestic VAT.

The result of these changes was to give consistency of treatment throughout the EU. Under the new rules, UK customers now have the choice to continue to use the aforementioned rules and account for the transaction at the time of transport. Alternatively, they can use the 'quick fix' rules that will allow them to defer the VAT accounting date to such time that they call-off the stock. For businesses subject to restricted VAT recovery, this can delay the time at which VAT must be accounted for and can assist cashflow.

Duty / Customs Clearance
It is likely that this will be an intra-community supply with no duty being applicable. Furthermore, no Customs Clearance procedures will be relevant (see June 2020 news article).

Tariffs
Tariffs are unlikely to be required (see June 2020 news article).

Call-off Stock – Post 1/1/2021
VAT
In the period to 31 January 2020 when the UK exited the EU, the call-off arrangements were not affected.
The transfer of goods within the same legal entity from one country to another is a deemed supply. This fact is sometimes missed, which can lead to problems.
Furthermore, a UK business making taxable supplies in the UK benefits from the annual VAT registration threshold of £85k. However, a business making supplies in an EU country where it does not have an establishment will have a zero registration threshold.

In the period post 1 January 2021 should ‘no deal’ be struck with the EU, the UK supplier would look to obtain a VAT registration number in the member states in which call-off stock is held. A Fiscal Representative may be required in each individual member state where stock is held, which will add to the administrative and financial cost for the UK business trading overseas. By way of example, this is a requirement of the Belgian Government in the event of the UK being considered a ‘third country’, i.e. not part of the EU.

The reason for this requirement of an overseas VAT registration is that the simplification rules will no longer apply with effect from 1 January 2021 where a ‘no deal’ is in place. As such, this supply of goods ‘to itself’ in Spain will be an export by the UK entity and no longer be a dispatch. Import VAT and duty may be due in Spain following the UK being considered a ‘third country’ (see below).

Duty / Customs Clearance
It is likely that duty will be payable in Spain on the goods exported by the UK supplier as they will have entered the EU from a ‘third country’, i.e. the UK, and that any Spanish Customs Clearance procedures will have to be adhered to. This results in its own problems and is referred to in the first article in this series – please see the section Duty / Customs Clearance in the June 2020 news article.

Tariffs
In relation to exports, a tariff will be required to classify the commodity code associated with the goods being exported to Spain. This was referred to in our June 2020 article, please see the section ‘Tariffs – Exports post 1/1/2021’.

Consignment Stock – Pre 31/12/2020
Consignment stocks are created where a UK business transfers its own goods to a different member state and creates a stock of those goods, over which it retains control and supplies several potential customers.

There is an initial ‘deemed supply’ in the seller’s member state which will be a dispatch in advance of the ‘no deal’ scenario occurring. There will be an acquisition in the other member state to which the goods are being transferred. Accordingly, there will be a requirement for the seller to become VAT registered overseas, account for acquisition tax on its overseas VAT return and in turn to make domestic supplies of the goods, at the appropriate VAT rate, to its customers.

As in the example referred to earlier, the UK business in transferring goods to Spain in order to (say) create consignment stock, boxes 6 and 8 on the VAT return must be completed. An EC Sales List declaration reporting a value based on the cost of the goods will be made and an Intrastat Dispatches Supplementary Declaration (‘IDSD’) will be completed should the UK supplier have breached the IDSD threshold (currently £250,000).

Duty / Customs Clearance
It is likely that this will be an intra-community supply with no duty being applicable. Furthermore, no Customs Clearance procedures will be relevant (see earlier article).

Tariffs
Tariffs are unlikely to be required as covered by the first article in this series.

Consignment Stock – Post 1/1/21
In the period post 1 January 2021 where ‘no deal’ is struck with the EU, the UK supplier would look to obtain a VAT registration number in the member states in which consignment stock is held. The removal of the goods by the UK supplier to a different member state will be an export rather than a dispatch with the rules pertaining to VAT on exports applying, as outlined in the June 2020 news article – see section ‘Exports – post 1/1/2021’.

This change will have all the additional associated costs related to an export rather than a dispatch being made, including but not limited to:

  • Duty / Tariff costs;
  • Duty deferment costs, e.g. costs associated with creating a duty deferment account to defer any duty payable and the requirement of a bank guarantee where this option is available in the relevant EU country;
  • Overseas VAT registration requirements, e.g. possible appointment of a Fiscal Representative; and
  • Customs clearance costs, e.g. warehouse storage costs where all the necessary export / necessary paperwork is not immediately available.

Brexit presentation
As the UK’s transitional period ends on 31 December 2020, we are proposing to run a Brexit presentation (online via Zoom) on the implications for UK businesses, should there be sufficient interest. We have prepared a questionnaire with 20 relevant questions (Yes/No replies only) that will take no longer than 10/15 minutes to complete. On completing this questionnaire, it will be apparent if your business will be affected by Brexit and would benefit from this presentation and perhaps any follow-up advice required.

Should this be of interest to you, please contact Gary Moore on 0141 636 9353 or 07812 061582.