What are the VAT Rules for International Businesses?

by | Jan 9, 2023

Since Brexit, there have been several changes to the tax rates for VAT on products coming and going out of the country.

Previously, businesses in the UK wouldn’t have to charge or pay for VAT in EU countries, but since 2021, the EU has been treated the same as any other country for VAT purposes. You only need to register for VAT with HMRC if you’re trading from the UK.

There are separate rules for Northern Ireland, but for England, Wales and Scotland, the latest VAT regulations are the same.

Here’s everything you need to know about the VAT rules for international businesses.

Exporting to the EU

As mentioned, since Brexit, exports to the EU will be treated the same as they would to non-EU countries.

Import VAT and any customs duties will be applied to any product you export, regardless of whether you’re selling to a business or directly to a customer.

It is still possible to zero-rate the sale, but you’ll need to provide evidence of the export within three months from the time of purchase. Any international exports must also be included in your VAT return and meet country-specific reporting requirements.

Since 1 January 2021, all supplies of digital services to consumers in EU member states have been liable for VAT in the consumer’s member state. The £8,818 annual threshold for cross borders sales of digital services to EU consumers no longer applies.

Importing from the EU

Whether you’re importing goods from the EU for yourself or your business, you’ll be required to pay 20% VAT on any purchase. If an item is worth more than £135, you’ll also incur an import duty cost.

These charges are usually applied when the goods enter circulation, which could either be upon arrival in the UK or upon release from the warehouse.

It’s possible to pay VAT at this point in the transaction, but many businesses use a postponed VAT accounting system to avoid cashflow problems.

Any product worth £135 or less will have VAT applied at the point of sale. You must declare these VAT charges on your next VAT return.

Keeping records

As with most business transactions, it’s essential you keep records of the VAT charges you pay on goods being exported or imported. All of this information will be included in your quarterly VAT returns.

This covers:

  • your VAT amounts from sales and purchases
  • the VAT you owe HMRC
  • any VAT you can reclaim.

If you use the flat rate scheme, you should include the turnover and relevant flat rate percentage on your reports.

EU refund system

If you’re charged VAT in an EU member state, you’ll normally be able to reclaim this from the tax authority in that country.

You’ll need to make a claim using either:

If you meet the eligibility criteria, you’ll be able to claim VAT back on invoices for goods only. You won’t be able to claim on the purchase of services or invoices that are both for goods and services.

Talk to the experts

With the post-Brexit VAT changes and their effect on trade, it’s never been more important to familiarise yourself with the latest regulations. We know all there is about VAT, so we can offer you advice and support to ensure you’re meeting your obligations to HMRC.

Talk to us about VAT rules for international businesses.

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