VAT-related consequences of a no-deal Brexit on 1 January 2021

The Brexit negotiations are proving difficult. As a result, the risk of a no-deal Brexit (the United Kingdom leaving the EU without any trade agreements) is becoming ever more likely. What will a no-deal Brexit mean for VAT-registered businesses and how can they prepare for it?

Business to business

Providing services

Netherlands – United Kingdom
According to the general rule, after a no-deal Brexit a service provided to a VAT-registered business in the United Kingdom will be taxed in the customer’s country: the United Kingdom. The VAT-registered seller does not include any VAT on the invoice and instead states ‘VAT Out of Scope’. This turnover is not entered on the VAT return.

United Kingdom – Netherlands
After a no-deal Brexit, services that a Dutch VAT-registered business has purchased from a VAT-registered business in the United Kingdom will be taxed in the Netherlands and entered under questions 4b and 5b of the VAT return, unless an exception applies to the service in question.

Supplying goods

Netherlands – United Kingdom
After a no-deal Brexit, goods supplied to a customer in the United Kingdom will be regarded as an export and the VAT will be zero-rated. An export declaration will have to be submitted to the Dutch customs authorities and this turnover will be entered under question 3a of the VAT return. The VAT-registered business will have to retain the customs documents in its records to substantiate the zero rate of VAT.

An import declaration will also have to be submitted in the United Kingdom. Some Dutch VAT-registered businesses do not want to burden their customers in the United Kingdom with import formalities and are planning to take care of these formalities themselves. That means these businesses will need to apply for a British VAT number, pay import VAT and charge British VAT.

From 2021 the United Kingdom is introducing a scheme under which import VAT will not have to be paid in the UK at the same time as the goods are imported. The VAT will be declared and recovered on the same VAT return. This scheme will apply to all VAT-registered businesses in the UK. Dutch VAT-registered businesses that wish to do business in this way are advised to register soon, as there is currently a long processing time for registrations.

United Kingdom – Netherlands
After a no-deal Brexit, a Dutch VAT-registered business that buys goods from the United Kingdom and imports them will have to submit an import declaration to the Dutch customs authorities, pay import duties and VAT on the import to the customs authorities and then claim back this VAT on its VAT return under question 5b, unless it holds an Article 23 permit.

A VAT-registered business that applies for an Article 23 permit can enter the VAT owed on imported goods on its VAT return under question 4a instead of having to pay the VAT immediately at the time of import. The import VAT can be claimed back under question 5b of the VAT return. It is possible to apply for the Article 23 permit if the relevant requirements are met:

• The VAT-registered entrepreneur lives in, or the business is established in, the Netherlands
• The VAT-registered business regularly imports goods from non-EU countries
• The VAT-registered business keeps separate records indicating how much import VAT is owed
• The VAT-registered business files a VAT return on a monthly or quarterly basis

Business to consumer

Providing services

According to the general rule, a service provided by a Dutch VAT-registered business to a consumer in the United Kingdom is taxed in the Netherlands. After a no-deal Brexit, the Dutch VAT-registered business will have to charge 21% or 9% VAT and enter this under section 1a or 1b of its VAT return.

Supplying goods

Sales of goods by a Dutch VAT-registered business to consumers will be regarded as exports and no VAT will be owed in the Netherlands. The Dutch VAT-registered business will enter this under section 3a of its VAT return.

Preparing for a no-deal Brexit

VAT refund

Dutch VAT-registered businesses that are entitled to a refund of VAT paid in 2020 in the United Kingdom can claim this in the usual way via the portal of the Dutch Tax and Customs Administration. It is important that VAT paid in 2020 in the United Kingdom is claimed back before 1 January 2021.

EORI number

A Dutch VAT-registered business requires an EORI number to do business with VAT-registered businesses outside the EU. It is a good idea for a VAT-registered business to check what its EORI number is now, or apply for one if necessary, to avoid any trading difficulties after 1 January 2021.

Article 23 permit

If you are a Dutch VAT-registered business, apply for an Article 23 permit via the website of the Dutch Tax and Customs Administration if you do not yet have one.
Please note: Brexit is and will remain the subject of much uncertainty, but it is important to make preparations in good time as 1 January 2021 draws ever closer.