Brexit and the Impact on SAP Customers - Part 11
Claire Neale from NTT DATA Business Solutions continues her insightful blog series keeping you up to speed with the latest developments in relation to Brexit and your SAP systems.
The changes faced by business impacted by Brexit have been profound. New Brexit agreements are complex, and businesses have had to make significant adjustments to ensure their trading models are correct. Now that we have passed the first VAT quarter of 2021, I thought it would be a good opportunity to look back on key highlights of Brexit, as well as also highlighting the most recent changes introduced by SAP.
- The UK (England, Scotland & Wales excl. Northern Ireland) officially left the EU on 31st January 2021;
- Whilst trade of goods between GB (England, Wales & Scotland) is trade free i.e. not subject to customs tariffs / quota arrangements this is only providing the ‘Rules of Origin’ conditions are met (see Rules of Origin below);
The Northern Ireland (NI) Protocol
The NI Protocol was introduced as a way of ensuring that an open border was retained between Northern Ireland and the Republic of Ireland. The upshot of this means that Northern Ireland remains part of the EU customs area in respect of movement of goods, and there is free movement of goods between the UK and Northern Ireland, they will be treated like domestic sales and purchases like pre-Brexit and therefore no VAT on movement of goods.
Note that services are excluded from the NI Protocol;
Intrastat Reports are required as follows:
Goods imported into Great Britain (GB) from the European Union (EU) (required up to 31.12.2021, thereafter not required);
Goods imported into Northern Ireland (NI) from the EU;
Goods exported from NI to the EU.
Rules of Origin
There are 4 criteria against which a product is validated against to determine the Rule of Origin, one of more can apply:
- Wholly obtained
Product must be 100% made in the UK (or from EU materials that are further processed);
- Change in commodity/tariff code
To demonstrate this rule has been satisfied, businesses will need to know the commodity/tariff code of their exported product as well as for all of its inputs, along with the country of origin of those inputs.
- Value added / Weight Limit
The value non-UK or non-EU originating materials may not exceed a given percentage of the ex-works price of the product. Note 4 of Annex ORIG-1 (Introductory Notes to Product Specific Rules of Origin) sets out the definition of ‘ex-works price’.
For some products, limitations on non-originating materials can apply by weight, by value or there can be choice of meeting either criteria in certain instances;
- Specified processes
Specified operations particular to certain specialised industries or products, such as chemical/textile industries, provides guidelines as to specific activities which must take place in the free trade area for a product to be considered as originating in that country.
Goods (or originating materials used to make them) must originate in either the UK or EU to take advantage of zero customs tariffs/no quota arrangement. This must be evidenced by obtaining a supplier’s declaration or equivalent documentation known as a statement on origin for imports. This provides importers with what is referred to as ‘Importers Knowledge’.
GB companies (based in England, Scotland or Wales) exporting to the EU will be required by their customer’s to provide a statement on origin. The statement of origin can be included on the invoice or other commercial documentation, with the exception of the bill of lading. The statement must describe the goods in “sufficient detail to support its identification”. Any such statement remains valid for two years in the UK, and 12 months in the EU (from the date quoted on the import documentation).
For exports above €6,000 (or £5,700), the EU exporter must have a Registered Export number and include it in their statement on origin.
For exact details on what qualifies goods for inclusion within the rules of origin are provided in the annexes of the agreement (ANNEX ORIG-2).
Economic Operator Registration and Identification (EORI)
The EORI number is required for all customs declaration / supporting documentation in relation to the movement of goods. If you only provide services, then an EORI number is not required. Companies may need more than one EORI depending upon where goods are being moved from/to.
There are potentially 3 types of EORI number which might be needed post Brexit:
- GB Businesses importing goods from EU countries requires an EORI number which is prefixed with GB;
- If goods are being moved/traded between GB & Northern Ireland, between Northern Ireland and non-EU countries then an EORI number prefixed with XI is required (no EORI number is required for goods being moved between NI and IE);
- UK businesses need an EU EORI number to import or export from the EU 27 member states. A single number for the whole of the EU may be obtained from any EU member state’s tax authority, this is usually done at the same time as applying for an EU VAT registration number.
GB businesses importing and exporting into the EU will need a customs intermediary and use their EORI number. This is because they are now non-resident within the EU Customs Union.
Postponed Accounting for VAT
If goods are imported from anywhere outside of the UK, and those goods are used in the business, a company can apply to use postponed VAT accounting. This avoids the requirement to pay import VAT immediately upon the goods entering the UK (e.g. at the port of entry). This covers all imports, and not just those from EU countries. The benefit of postponed VAT accounting is to avoid an impact to cash flow when importing.
With postponed VAT accounting, the import VAT is declared on the VAT Return. This avoids paying VAT and then subsequently reclaiming it later. No authorisation is required from HMRC to use postponed VAT accounting, however EORI & VAT numbers are required on customs declarations.
Using postponed VAT accounting is mandatory if you use delayed customs declarations, and if you continue to use the EIDR (Entry in Declarant’s Records) scheme after the delayed declarations period ceases on 1 July 2021.
Postponed VAT is only relevant for imports to England, Wales or Scotland and where the value of goods exceeds £135. For imports under this amount, there’s still a need to account for VAT but the new e-commerce rules must be adhered to (even if the goods were not traded via e-commerce).
Consignments under £135 no longer attract import VAT and instead supply VAT is applied at point of sale by the seller, as follows:
- If being sold to a consumer or non-VAT-registered business, the seller should charge UK VAT and will therefore need to have registered with HMRC and account for UK VAT;
- The UK VAT is reverse charged to the customer. Along with the fact import duty isn’t payable on goods £135 and below, this will then lead to the goods clearing customs quickly.
If the business is not VAT registered then import VAT payments can be deferred for up to 175 days from the date of import, as with the delayed customs declarations provisions. This however mandates a duty deferment account.
With postponed accounting, the import VAT is reported on the VAT Return, rather than paying it immediately (e.g. at the port of entry), as follows:
- Box 1 – VAT due on sales and other outputs: Include the VAT due in this period on imports accounted for through postponed VAT accounting
- Box 4 – VAT reclaimed on purchases and other inputs: Include the VAT reclaimed in this period on imports accounted for through postponed VAT accounting
- Box 7 – Total value of purchases and all other inputs excluding any VAT
Include the total value of all imports of goods included on your online monthly statement, excluding any VAT.
Postponed VAT accounting is optional unless a business has deferred the submission of customs declarations. Where a business decides to not take advantage of the postponed accounting arrangement for VAT, the VAT can be paid upfront when the goods enter free circulation in the UK (at the port of entry, for example, or after release from a customs warehouse).
Postponed VAT accounting can be used by all VAT-registered businesses in the UK, although businesses in Northern Ireland will continue to be considered part of the EU VAT area, so goods arriving from the EU will not be considered imports and will therefore not incur import VAT. However, it can still be used for imports from outside the EU.
VAT on Services
Rules relating to VAT on services continue to apply as they did prior to 31.01.2021.
- Business to business (B2B) sales of services will continue to be generally subject to tax in the country of the customer and administered through reverse charge, with some exceptions;
- Business to consumer (B2C) sales of services will continue to be generally subject to tax in the country of the seller, again with some exceptions;
UK businesses that use the Mini One-Stop Shop (MOSS) system now need to register for the non-union MOSS and, as such, no longer benefit from a €10k threshold before having to apply the place of supply rules.
This will result in more businesses being liable to VAT in the countries they sell digital services to and so will find themselves needing to register for the non-union MOSS.
SAP OSS Notes
A reminder of the Key OSS Notes, these are regularly being updated with changes/new developments:
2885225 Brexit: Through the Transition Period and Beyond
2855240 Recommendations for Brexit in FI
3002286 Important BREXIT related information – Intrastat
New OSS Notes raised since my last blog on 19.03.2021:
3028127 IE Brexit: VAT3 – Postponed Accounting for Importing of Goods in Ireland (new box PA1)
After applying this OSS note and undertaking relevant configuration, the VAT 3 report will be updated with an additional box (PA1) to consider the value of goods imported under Postponed Accounting (such as net plus carriage, insurance, and freight). The VAT will be accounted for T1 and T2 (subject to the usual rules of deductibility).
2855240 EU Validation of VAT registration number of EU business partners
This note will be the key note for supporting the automatic VAT number validation to the VEIS (VAT Information Exchange System) search engine provided by the European Commission, and will be automatically updated with changes as they are issued.
3026220 Brexit – Tax Number 6 replication from CRM to ERP
Prerequisite Note 3009092 currently in pilot release and only visible to customers maintained in the pilot list. If it is not available, the customer will have to be added to the pilot list of customers and then it will be available.
Once OSS notes 3009092 & 3026220 tax number 6 will be replicated in ERP from CRM.
3034820 Intrastat Brexit: Intercompany region is checked incorrectly
In an Inter Company scenario, when the delivering plant is located in UK, Intrastat reporting (transaction code VI98) checks the region incorrectly when determining if the UK region belongs to Northern Ireland or not.
A pre-requisite to this OSS Note is 2976216 ‘Intrastat End of Brexit transition period on January 01, 2021’.
3031963 Brexit – Tax-Type > 6
A legal change regarding tax numbers has been introduced to the ERP vendor master and was adapted to the business partner as well.
With the current SAP Note, the ERP-SLC functionality is prepared to handle the changes.
As issues and additional features are highlighted, we are regularly raising calls with SAP for resolution. On a daily basis, SAP are still updating some of the corrective actions.
Please raise a ticket initially, via the portal, so we can capture that question or request.
Remember to check back regularly for the next in our Blog series on Brexit.