Brexit: Worst Case Scenario – Part 1

Applying for a VAT number in the United Kingdom

As we wrote earlier, although the United Kingdom (UK) withdrew from the European Union (EU) on 31 January 2020, it managed to keep all pre-existing customs and tax rules unchanged by the end of the 2020 calendar year. The future is still questionable: the UK and the EU still could not agree on what kind of relationship they should keep. Since the moratorium expires in two months, it is time to prepare for the worst-case scenario. In our new newsletter series – in addition to what was described in our previous newsletter – we would like to draw our clients’ kind attention to new aspects.

Hungarian companies that have so far not had to claim a tax number in the UK as a result of various VAT reliefs (e.g. call-off stock, triangulation simplification, distance selling, etc.) will certainly have to do so from 1 January 2021, unless the UK and the EU otherwise agreed. More specifically, in order to continue their business smoothly, their UK tax number must be completed by that date, which means that the Hungarian companies concerned will have to start the application process in a few days.

We would like to emphasize that the United Kingdom is a combination of four well-separable territories (England, Wales, Scotland and Northern Ireland), so different territories may operate under different VAT rules. Those Hungarian companies, that have business contacts with the companies established in other UK territories outside England, be sure to find out about any VAT and customs rules that may be relevant and applicable – already during the tax number application process.

A UK tax number will, of course, also involve filing VAT returns in the UK, with some relief that the EU recapitulative statement (this is Form A60 in Hungary) will not have to be dealt with (in the relation of the EU and UK).

The VAT paid in the UK by newly-registered Hungarian companies will, of course, be deductible / reclaimable according to local rules. However, not via the previous method used by the Hungarian companies, the so-called Form ELEKÁFA, but through UK VAT returns. One of the positive results of this is that the amount of VAT will be paid out sooner, the companies do not have to wait until 30 September of each year.

In parallel with the tax number request, it may be worth reviewing contracts with UK partners, as well as freight companies, and considering the use of other freight parities that are more favourable in the light of the changes. It is advisable to entrust the preparation and submission of VAT returns, including the identification and exclusion of potential tax risks, to the UK tax advisory firms that are fully aware of local rules, but this will also involve regular (monthly / quarterly) extra costs for companies. Last but not least, the company’s own colleagues – accountants, freight forwarders, contact persons – need to be prepared for the changes caused by Brexit.

As can be seen from the above, there are several consequences of applying for a UK tax number and then we have not even talked about the steps of registration or the necessary documents (their preparation and acquisition). The deadline is approaching, so it is not worth postponing any further preparations.

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VGD Hungary’s tax advisors and UK partner firms will be pleased to answer your questions concerning the Brexit.

This article provides general information and does not constitute tax advice.