On 1 January 2021, the UK left the EU VAT regime. Although the UK has retained a VAT system, it now operates on the basis that it is a third country (with the exception of goods supplied to and from Northern Ireland (“NI”), which continue to be treated as intra-EU trade for VAT purposes).

The UK Government’s agreement of the Trade and Co-operation Agreement with the EU does not change the VAT position. The TCA contains minimal provisions relating to VAT and with the exception of NI trade in goods, the UK is in most respects expected to be treated as any other third country for VAT purposes.

On 30 September 2020, the European Commission published Explanatory Notes on the new VAT e-commerce rules that apply from 1 July 2021, which change how VAT applies to imports and distance sales of goods in the EU. These extensive Explanatory Notes explain and clarify the upcoming VAT rules and provide practical guidance for electronic interfaces (e.g. marketplaces or platforms), suppliers and logistic service providers involved in e-commerce. 

Due to COVID-19, the implementation of the VAT e-commerce rules was postponed by six months from 1 January 2021 to 1 July 2021; however, the European Commission recently indicated that further postponement will not occur. Businesses must now urgently prepare for the new rules. The Explanatory Notes offer some useful guidance for this exercise. Although they are not legally binding, it is our experience that all EU member states adhere to the views set out in such notes. After all, representatives of all EU member states were involved in drafting them.  

Baker McKenzie’s EMEA Tax Practice Group presented an overview on VAT on 13 October 2020, the tenth in a series of short webinars to keep tax professionals abreast of recent developments in these less than certain times.

On 20 July 2020, HMRC published new guidance about how VAT will apply to sales of goods in the UK from 1 January 2021. The rules broadly align with the EU proposals for distance sales and imported goods, currently due to come into force from 1 July 2021.

Businesses impacted by these changes include overseas sellers of goods to UK customers, all Online Marketplaces (OMPs) which facilitate sales to UK customers and businesses that currently rely on goods being imported VAT-free under the low value consignment relief.