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United Kingdom VAT Policy Changes

The British Government introduced a new model for the Value-Added Tax (VAT) treatment of goods arriving into Great Britain. 

As of January 1, 2021, the British Government introduced a new model for the Value-Added Tax (VAT) treatment of goods arriving into Great Britain (England, Scotland, and Wales).  For import and export purposes, Northern Ireland is treated differently than England, Scotland, and Wales.  VAT is a consumption tax levied on business transactions (both goods and services), imports, and acquisitions.  The latest VAT policy changes follow the UK’s departure from the European Union (EU) and the conclusion of the transition period on December 31, 2020.  The domestic VAT rules remain the same; only VAT as it applies to importing and exporting has changed.  

The new model has several purposes:

  • To ensure equal treatment of goods from EU and non-EU countries.
  • To ensure that UK businesses are not disadvantaged by competition from VAT free imports.
  • To improve the effectiveness of VAT collection on imported goods.
  • To address the problem of overseas sellers failing to pay the correct amount of VAT.

U.S. entities exporting to the UK should review their VAT responsibilities, as these may have changed with the new model.  The main considerations in the new policy are:

  • The value of the transaction, specifically whether it is above or below £135 (approximately $175).
  • Whether an online marketplace (OMP) is involved in facilitating the sale.
  • Whether the goods are being sent directly to a consumer versus to another business.

For VAT purposes, many U.S.-based entities fit the UK government’s definition of a Non-Established Taxable Person (NETP): “A non-established taxable person (NETP) is any person who is not normally resident in the UK, does not have a UK establishment, and, in the case of a company, is not incorporated in the UK.”

All NETPs that provide a taxable supply in the UK must register for VAT in the UK and must account for VAT to the British Government.  This applies to all supply values and includes digital services.  A taxable supply is any supply made in the UK that is not VAT exempt.  This includes zero rated supplies.

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