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VAT triangulation

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Following the UK leaving the EU VAT regime from 31 December 2020, UK vendors have lost the right to use the B2B VAT triangulation simplification when selling goods between EU member states. UK businesses will no longer be able to invoice VAT free using their GB VAT numbers when their supplier and their customer for goods are in different EU member states. On the flip side, EU suppliers will lose out too, as UK legs to triangulation supplies will incur import VAT following Brexit.

The impact will be the need to re-plan the contracting supply chain, manage import VAT or consider if extra VAT registration would resolve the problems. Northern Ireland goods transactions stay within the triangulation rules.

Triangulation is a VAT compliance simplification when there are three businesses in a B2B trade, and they are all located in different EU member states. For example, prior to 1 January 2021, when the UK left the EU VAT regime, a UK company (B) with a GB VAT registration buys goods from a Spanish supplier (A) prior to shipment directly to a customer in Germany (C).

Ordinarily, this would require the UK company to VAT register itself in Germany or Spain to record the purchase and onward dispatch (sale) to the German customer.

To avoid creating a need for many companies to register like this, triangulation simplification exemption was created within the EU VAT law, which is implemented across all member states. So that the UK company did not have to register for VAT in Spain or Germany. The Spanish supplier (A) would zero-rate the sale to the UK company (B), who could then in turn zero-rate their transaction to the German customer (C).

The UK supplier, B, can no longer use its GB VAT number in the example above to avoid a VAT registration in Germany or Spain. However, if they have another EU VAT registration, they could switch in that one, or get Spanish or German VAT registered. However, obtaining a Spanish registration would be challenging as the UK company would not actually be selling (taxable transaction), so it may be refused.

If a UK company was the customer or supplier in the above transaction, then import VAT now becomes the problem. If the UK company is A, the supplier, then this would be a zero-rated export. However, the supplier would then have to worry about import VAT before they could sell to their EU customer.

If the UK company was the customer, again, the supplier has to worry about UK import VAT. They could think about a UK VAT registration with postponed VAT accounting. The risk of Brexit tariffs would have to be considered, too.

Northern Ireland remains within the EU VAT regime for certain goods transactions. So, an XI VAT number may still be used for triangulation where there is an NI element. Northern Ireland resident businesses should be able to use their ‘XI’ country prefix VAT numbers for carrying out triangulation supplies even where there is no NI goods movement.

Issue: 1524
Categories: In brief