What will Brexit mean for UK-based suppliers to EU consumers?

Trade: VAT status could change

Supplies of goods to consumers in the EU:

The detailed impact of Brexit is still uncertain, but differing “distance sales” thresholds for sales of goods between EU member states is a key issue.

Thresholds differ between member states, ranging from €25,000 to €100,000.

This means UK businesses selling to private consumers (B2C) in other MS countries using their UK VAT number add UK VAT to the sale – but crucially don’t currently have to register for VAT in these countries unless they exceed the local distance sales threshold.

What does this mean post Brexit?

If the UK no longer has access to these thresholds, any UK business selling to consumers in another member state will need to register for local VAT.

This will be a significant challenge as many smaller businesses will not have the means to register in each country – with issues around language, currency and local rules. For example, certain member states require a physical business presence in that country to be able to register for VAT.

It may also be extremely costly as the administration of continuing registration requirements has been estimated at €5,000 to €8,000 per annum, per member state.

Another additional cost is the VAT rate itself. In some European countries it is as high as 27%, so firms must take it into account in setting prices.

Supplies of electronic services to EU consumers:

Since 2015 businesses which sell electronic services directly to consumers (eg downloads, apps, games etc) have had to either suffer the administration costs of registering and declaring VAT on supplies in each country they have supplied EU consumers in, or have reported all of their EU electronic services sales on a single return to UK HMRC under the EU-wide MOSS (Mini One Stop Shop) scheme.

The scheme means it is not necessary to declare VAT due separately to each EU member state, and settlement of each country’s entitlement to VAT is delivered by HMRC.

What happens post-Brexit?

If the UK loses access to the EU MOSS arrangements following Brexit, businesses are likely to no longer be entitled to use the UK as the prime registration country for MOSS.

They will have to register for MOSS in one of the remaining EU member states to regain access to this simplification – Eire may be a likely alternative as its language and process are similar to the UK – or register for VAT in each member state in which it makes supplies.

Alternatively, they may decide either option is too demanding on resources and withdraw from the market.

The sooner these aspects are made clear in the Brexit negotiations, the sooner businesses trading with consumers in the EU will be able to plan their approach.