What VAT changes can you expect in January 2021?


What VAT changes can you expect in January 2021?

What VAT changes can you expect in January 2021 and why you need to act now.

On 31 January 2020, the UK left the EU. The final departure date is 31 December 2020, when the BREXIT transition period comes to an end and VAT changes will take plan 1 January 2021. Your business must have in place all the correct VAT processes, contracts and agreements to continue trading in goods with the EU from 1 January 2021.

If your business imports goods from the EU you may have the option to defer declarations for 6 months to 30 June 2021, otherwise you will need to complete full import declarations. The process is the same as presently exists with the import of goods from outside the EU. It will be necessary to complete export declarations for goods sent to the EU, as is currently required for exports of goods to countries outside the EU.

Postponed accounting for VAT

Postponed VAT accounting (PVA) will be introduced from 1 January 2021. As a result, VAT registered businesses will no longer need to pay VAT at the time of import of goods arriving in the UK, whether the goods come in from the EU or countries outside the EU. PVA will provide a cash flow benefit to UK importers as they will be required to self-account for the import VAT on their VAT returns (Box 1 of the VAT return). Additionally, the VAT will be claimed as input tax on the same VAT return (Box 4 of the VAT return).


Intrastat returns will still be due on imports of goods from the EU, but not on sales of goods to the EU.

Abolishing the Low-Value Consignment Relief Scheme

HMRC will abolish the UK £15 Low-Value Consignment Relief (LVCR), which presently exempts imports of goods from outside the UK below £15 from VAT.

For goods at or below the value of £135 (aligning with the threshold for customs duty liability), will be liable for domestic VAT rather than Import VAT on consignments. The collection of VAT will move from importation to the point of sale.

From 1 January 2021, Online Marketplaces (OMPS), who facilitate sales, must register for UK VAT to account for VAT on their deemed supplies and who are responsible for collecting and accounting for the VAT.

For UK consumers who purchase goods directly from overseas companies, the seller must register, and account for, the VAT to HMRC.

EU Mini One-Stop-Shop (MOSS)

The UK will no longer be in the EU VAT MOSS scheme. Under the MOSS scheme, UK sellers of digital services could account for the VAT due on B2C sales to each EU country, without the need to register in each one.

UK sellers to EU consumers under the existing MOSS will now have to register in an EU country and pay tax in that country under the non-EU MOSS scheme.

There is a zero threshold on the value of B2C sales to EU consumers.  UK businesses must register in the EU by the 10th day of the end of the month following their first sale to an EU customer after 1 January 2021.

Retail Export Scheme

This is also known as ‘tax-free shopping for tourists’.

It has been announced that this scheme will cease on 31 December 2020.  Retailers who use the scheme must communicate with their staff of the change.

Retailers should monitor the situation on this matter, as some businesses and trade organisations are pressuring the Government to reverse its decision.

EU VAT Refunds

UK businesses can still recover VAT incurred in the other EU Member States during 2020 after 31 December.

Claims can be submitted electronically up until 11 pm on 31st March 2021, after this point and until 30th September 2021, a paper form will need to be completed and submitted to the member state of refund.

EU VAT can continue to be reclaimed by UK businesses for 2021 expenditure under the non-EU claims process.  Paper forms will need to be completed in the official language of the relevant tax authority.

Distance Sales to the EU

Distance sales will be exports from the UK and imports into the EU.  UK suppliers will need to remember that:

  • Import VAT and possibly customs duty may be due.
  • Unless the supplier has arranged to pay the import taxes in advance, the customer may be required to pay.

What should companies do to prepare for 1 January 2021?

UK businesses or EU businesses trading in the UK must consider how to pay VAT on goods and update their delivery terms to reflect the VAT obligations.

You will need to determine your VAT obligations in any cross-border supply chains and register for VAT in any country that is required. Businesses should also manage the VAT de-registration process, where necessary. Companies must consider the cash-flow implications and potential business liabilities if registering for VAT within the EU.

Unfortunately, as time appears to be running out on a trade agreement, there is very little time for businesses to ensure their VAT accounting systems are in order.

VAT registered businesses importing or exporting goods should apply for an EORI (Economic Operator Registration and Identification) number.

If you need any assistance these VAT changes, with trading goods with the EU in January 2021, or would like to know more about completing your VAT returns accurately, then please get in touch with our team today.

Ashok Nerurker
Manager at Wilder Coe
Ashok’s clients benefit from the wealth of commercial experience he has gained through more than 10 years of working with Wilder Coe, and through his previous roles as a Company Accountant and Company Secretary. This all-round experience of accounting allows Ashok to fully understand his client’s requirements and offer the most efficient solutions in a timely fashion.