Brexit resulted in several major changes for UK businesses involved in exporting goods. In 2021, any movement of goods outside the UK will be treated as an export.
When exports occur within the specified time limits, they are zero-rated for VAT purposes.Exports are zero-rated for VAT purposes, subject to the export occurring within the specified time limits. This is also only the case if the exporter holds valid documentary evidence as proof of export. Within this context, there are two types of export:
- Direct export – the supplier is solely responsible for arranging the transport for the movement of goods outside the UK.
- Indirect exports – the overseas customer or their agent is responsible for collecting the commercial goods from the supplier i.e. they are responsible for arranging the transport of goods.
In both of these cases, the export can be treated as zero-rated.
However, from the 1st January 2021, zero-rating now applies to commercial sales only. HMRC have also updated their public VAT notice, which has altered the definition of an overseas customer. Under the new definition, the criteria for an overseas customer is as follows:
- A business person or company who is not resident in the UK.
- A business that has no business establishment in the UK from which taxable supplies are made.
- Overseas authority.
An overseas person now no longer includes private individuals. This is a subtle change that has been missed by many businesses but could potentially cost them a significant amount in VAT.
Impact of VAT treatment (direct and indirect)
The change has had a major impact on the VAT treatment of indirect exports. Zero-rating still applies where there is a direct export and the supply is made to a private individual, however for indirect exports involving private individuals, VAT is now chargeable on the movement of the goods.
The impact of this change could leave businesses vulnerable to VAT assessments from HMRC. Therefore, businesses who are involved in indirect exports with private individuals should review their export processes, as well as the way they have treated exports for VAT since the beginning of 2021.
For more information or to discuss specific circumstances, please get in touch.