The end of the Brexit transition period meant that from 1st January 2021 there were changes made to the way VAT is charged between the UK and the EU.
This article is split into two main sections dealing with VAT treatment on or after 1st January 2021, and VAT treatment before 1st January 2021.
VAT treatment on transactions dated on or after 1st January 2021
Specific changes affecting Great Britain (England, Scotland, Wales) - which excludes Northern Ireland
The arrangements depend on whether your business is registered in Great Britain (England, Scotland, Wales) or in Northern Ireland. Northern Ireland is part of the UK but has slightly different agreements with the EU.
It is therefore important to select the correct country when setting up your business so that Farmplan Business Cloud can apply the right protocols and calculations.
It also makes it easier for you to complete your bookkeeping accurately. Farmplan Business Cloud tailors your settings according to location, so you only need to see options which are relevant to your country’s rules.
How do I select the correct location?
When you create your business you will have been asked to select the appropriate country setting. Please note this cannot be changed later.
How does this affect what I see in Farmplan Business Cloud?
The choice of country will affect the VAT codes that are available in Farmplan Business Cloud as you will only see those codes relevant to your location.
Transactions between Great Britain (which excludes Northern Ireland) and the EU/ rest of the world will now mostly use either an ‘EX’ tax code for zero rated transactions, or RC tax code where the reverse charge applies. It is important to select the right one so that your VAT return is accurate! It will not affect the amount of VAT being claimed or to be paid, but it will populate the VAT boxes in accordance with HMRC regulations.
If you are unsure which tax code to use, please seek help from your accountant.
You’ll only be able to use the reverse charge tax code for designated customers or suppliers. To enable the reverse charge tax code for your relevant non UK customers or suppliers, please tick the 'Reverse Charge?’ box when creating or editing that customer or supplier as below:
Doing this will enable the RC (Reverse Charge) tax code option when you create invoices for that customer or supplier. The VAT will be taken care of for you and will be reported automatically on your VAT return in boxes 1 (VAT due on sales) and 4 (VAT reclaimed on purchases) with the net being shown in box 6, (total value of sales).
If you cannot see the Reverse Charge Option in your customer or supplier details go to Company Settings > Financial Information and select
Please note, VAT rules can be very complicated so please check with a professional if you are not sure how to treat it.
For HMRC guides to VAT see:
EU tax codes (ES & EG) should not be used for transactions dated on or after 1st January 2021.
As EC Sales Lists are no longer required for GB businesses, it will not be possible to create EC Sales lists for the period starting 1st January 2021 onwards.
Specific Changes for Northern Ireland (United Kingdom)
ES tax codes can no longer be used for transactions dated on or after 1st January 2021.
EG tax codes can still be used as normal with EU member states.
EC Sales Lists can still be used but only containing transactions with EG tax codes.
As with the changes to the United Kingdom (Excluding Northern Ireland) a Reverse Charge (RC) tax code has been made available for the relevant transactions with the EU. If you are unsure which tax code to use, please seek help from your accountant.
For the rules on how to report sales of goods from Northern Ireland to the EU see HMRC.
VAT treatment on transactions dated before 1st January 2021
If you have a business that offers goods/services outside the UK to Europe then this section of the article will explain how the VAT is treated in Farmplan Business Cloud
VAT on goods and services to Europe
When selling goods or services from the UK to other EU countries, the VAT treatment can differ depending on your customer.
As a general rule, when selling to non-VAT registered businesses and consumers in other EU countries you should charge them full UK VAT on your sales (using the standard rate 'ST' VAT code in Business Cloud). However, you do need to check each country's 'distance selling threshold' to see whether you need to register there as well (see below).
If you are selling to another EU business that is VAT registered in their country, then you can zero-rate the sale. This means that you charge VAT but at zero percent. To do this you should ask your customer for their VAT registration number and show it on your invoice with a note to say that you are zero-rating the sale.
On your invoices to these customers you should use the following VAT codes in Farmplan Business Cloud:
· ES: Europe Services, if you are selling a service to your European customers.
· EG: Europe Goods, if you are selling goods to your European customers.
You must also complete an EC Sales list which is a quarterly report to HMRC listing the sales to your VAT registered European business customers. If you use the correct VAT codes in Business Cloud then the software will populate your EC Sales list automatically each quarter (always the calendar quarters).
Purchase from EU Countries
If you purchase an item from a EU country then both input and output is declared at the UK rate on the VAT return. However Farmplan Business Cloud will handle this for you so just enter the net amount on each item but ensure that you use the VAT status of:
· ES: Europe Services, if you are purchasing a service from European customers.
· EG: Europe Goods, if you are purchasing goods from European customers.
The VAT return will show VAT on acquisitions from other EC member states (box 2) and VAT reclaimed on purchases (box 4). The net value will be shown as a purchase (box 7) and value of goods supplied from other EC member states (box 9).