Brexit guide: What happens to invoicing and VAT?

If your recruitment business deals with the European Union (EU), the way you handle invoicing and VAT will change from January 1, 2021.

When the transition period ends on December 31, 2020, UK businesses will have to treat invoicing and VAT to Europe in the same way as dealing with non-EU countries. Regardless of whether the UK and EU strike a trade deal, there will be new paperwork and formalities.

Please note that while we refer to the UK in this article, Northern Ireland will be treated differently compared to the rest of the UK.

What will change for business services?

B2B services are mostly VAT free, and thankfully nothing will change when the transition period ends.

Some things will be simpler, as there will be no need to state whether a company is in the EU or outside the EU, as all foreign countries will be treated the same. UK businesses will no longer be asked to obtain customer VAT numbers and quote them on invoices. You just need to show that they are outside the UK.

Please be aware that UK businesses will still need to apply the VAT reverse charge to services received from the EU as these will be VAT free when purchased in the same way that services from outside the EU are dealt with.

What about reclaiming VAT incurred in the EU?

This is where things get more complicated. Rather than making a single claim to HMRC for VAT incurred in all EU member states, businesses will have to claim for each individual country.

These claims must be made on country specific documents and in the relevant language. With different rules for tax deadlines, thresholds and claim procedures, it is not surprising that many businesses will hire VAT experts to handle all this extra red tape.

If you do decide to nominate a VAT agent, the rules differ between EU states, so you must check the regulations in each country. You will also need to consider the complications which will only add to your costs. Will you need to increase your prices for European clients?

Will invoicing change?

Due to the changes surrounding VAT, your invoicing procedure for EU member states will need to be updated. As mentioned, the exact details will largely depend on the taxation regime of the specific country involved.

Going forward, UK companies will need to adopt the European e-invoicing standard when doing business on the continent. 

What about EU businesses trading in the UK?

The changes after the transition period also affect EU companies doing business in the UK. They will need to register for VAT in the UK, regardless of whether they have an office here.

Want can you do?

The key thing is to be prepared for any changes and to keep abreast of the situation as the UK exits the transition period.

If you have any questions, the UHY Hacker Young Recruitment Business team are always on hand. We are specialist accountants who offer recruitment and employment businesses dedicated expertise in area such as accounting, finance, taxation and business growth. As part of the UHY International network we have offices in over 90 countries worldwide and can support with cross border VAT issues.