Brexit and beyond: the ten tax actions businesses need to consider

The delivery terms, or ‘incoterms’, agreed with both suppliers and customers are critical in determining the VAT impact of Brexit. There are different indirect tax implications for ex works (EXW) and delivered duty paid (DDP) agreements. Reviewing your supply chain is particularly important for businesses moving goods around the EU.

The UK-EU Trade and Cooperation Agreement (TCA) secured preferential tariff and quota-free trade on imports of EU-origin goods into the UK and imports of UK-origin goods into the EU. You should determine how the 'rules of origin' apply to your supply chains in order to ensure your business benefits from the no-tariffs provision. The TCA provides several ways in which a product's origins can be determined and there are helpful measures that permit businesses to self-certify their compliance with origin requirements.

Specific rules apply to Northern Ireland, including the application of EU customs duties to goods entering Northern Ireland from Great Britain that are deemed 'at risk' of entering the EU.

Depending on the supply chain, your business may need UK, EU and/or Northern Irish EORI numbers. These will be critical in order to continue importing and exporting now that the transition period has ended.

Your business may also need to register for VAT in EU member states where it was not previously registered. Some EU member states also require businesses to appoint a fiscal representative, who not only assists with local VAT compliance but also has joint and several liability for the VAT debts of the supplier. These services can be costly and it can be difficult to find a VAT adviser willing to act in this capacity.

Customs declarations will be required for goods entering the EU from the UK including proof of origin (without which duties could become payable). Goods entering the UK from the EU will be subject to a phased implementation of border controls over six months. Businesses not established in the country they are importing to or exporting from will need to appoint an indirect customs agent to declare the goods for import/export. As with appointing fiscal representatives, this requirement has a cost attached and may not be easily achieved. We recommend discussing possible arrangements with the logistics and freight transport partner for the business.

Imports from both EU and non-EU jurisdictions may be accounted for under postponed VAT accounting from 1 January 2021 by UK VAT-registered businesses. This is likely to be a simplification in the long term but nevertheless represents a change to the current process and IT systems must first be set up to adopt the new process.

The VAT treatment of some financial and insurance services supplied to EU customers changed after Brexit and the ability to recover VAT on costs incurred should improve. These businesses should review the partial exemption methods to determine how much VAT they can recover from 2021.

UK businesses supplying e-services to non-business EU customers may be registered currently for the MOSS scheme and it is likely that they registered for MOSS in the UK.  Such registrations will need to be transferred to an EU member state and may need to change to a non-Union VAT MOSS registration. Details on how to register can be found here.

'Detached workers' include any individuals who are assigned overseas by their employer to work in an EU country or the UK. Although the social security coverage process broadly remains the same as before Brexit, the TCA states that as long as an individual posting does not exceed 24 months and the employee is not replacing another detached worker, employees can remain in their home country system.

The 24-month limit is significant, since there is currently no indication that this period can be extended, potentially leading to a longer-term host country liability from after that time.

EU countries must agree to the detached worker provisions before 1 February 2021 in order for them to continue to apply. During this period, if an employee comes to work in the UK from a country that has not confirmed its position, a coverage certificate should be applied for in line with the previous process. Similarly, a coverage certificate should be obtained for anyone leaving the UK during this period to work in an EU country that has not opted out of the rules. This will ensure that the employee and employer continue to make UK national insurance payments.

Only a handful of countries have agreed to the rules to date (as of 5 January 2021) including Austria, Hungary, Portugal and Sweden. These countries opted into the detached worker provisions and all other EU countries have yet to notify the European Commission by 1 February 2021.

Importantly, where an EU country opts out of the detached worker rules, employers and employees will be liable to pay contributions in the country in which they are working, subject to specific provisions. It is still the case, however, that double social security contributions cannot be charged by both a home and host country.

With the loss of EU directives, dividends received by UK companies from some EU jurisdictions may now be subject to WHT. This may be an absolute cost to a group, depending on the respective domestic law or double taxation treaty (DTT) governing the transaction. Even if the tax rate does not change after 31 December 2020, there may be procedural changes, such as the need for additional tax authority clearance procedures.

The WHT rates applicable for other cross-territory payments, such as royalties and interest between the UK and EU member states, may also change following the loss of EU directives.  Once again, this will be dependent on the respective domestic laws and DTT.

Businesses that have changed - or plan to change - their operating models need to be aware of the potential tax implications. These include capital gains and exit charges on cross-border transfers of assets or functions, WHT implications and clearance procedures on new cross-territory payments and the need to update transfer pricing policies.