From 1 January 2021 find out about the changes to tax deductions from interest royalties and dividends.
Changes to deduction of tax from interest, royalties and dividends from 1 January 2021
From 1 January 2021, the way that interest, royalties and dividends are paid between Welsh and EU companies may change and tax may be deducted from some payments.
If this happens you may be able to claim full or partial exemption from these deductions, or claim back some or all of the tax already paid.
Deduction of tax from interest and royalties
Payments from the EU
From 1 January 2021, some EU member states may start to deduct tax from interest and royalty payments made into Wales which used to be exempt.
The amount of tax deducted will depend on the double taxation agreement between the UK/Wales and the EU member state.
As a Welsh company, if you receive royalties and interest in Wales from an associated company in an EU member state, you can usually apply for full or partial exemption, or claim back some or all of the tax you have already paid under the relevant double taxation agreement.
Check the terms of the double taxation agreement between the UK/Wales and the EU country where the person paying the dividends is resident. You may need to submit a new or revised claim to the tax authorities of the EU member state.
From 1 January 2021, if you're a UK VAT-registered business find out when you can, or need to, account for import VAT on your VAT Return (also called postponed VAT accounting).
Accounting for import VAT on your VAT return means you’ll declare and recover import VAT on the same VAT Return, rather than having to pay it upfront and recover it later.
The normal rules about what VAT can be reclaimed as input tax will apply.
Who can account for import VAT on their VAT return
From 1 January 2021, if your business is registered for VAT in the UK, you’ll be able to account for import VAT on your VAT Return for goods you import into:
- Great Britain (England, Scotland and Wales) from anywhere outside the UK
- Northern Ireland from outside the UK and EU
There will be no changes to the treatment of VAT or how you account for it for the movement of goods between Northern Ireland and the EU.
You do not need to be authorised to account for import VAT on your VAT Return.
Non-established taxable persons
If you’re a non-established taxable person your nominated intermediary will be able to account for the import VAT on their VAT return. When the goods pass to you from the intermediary, they’ll send an invoice including the relevant VAT.
When you can account for import VAT on your VAT Return
You can do this if:
- the goods you import are for use in your business
- you include your EORI number starting with ‘GB’ on your customs declaration
- you include your VAT registration number on your customs declaration, if it’s needed
If you initially declare goods into a customs special procedure, you can account for import VAT on your VAT Return when you submit the declaration that releases those goods into free circulation from the following special procedures:
- customs warehousing
- inward processing
- temporary admission
- end use
- outward processing
- duty suspension
You can account for import VAT on your VAT Return when you release excise goods for use in the UK - also known as ‘released for home consumption’. This includes when goods are released from an excise warehouse after being in duty suspense since the point of import.
When you must account for import VAT on your VAT Return
If you import goods that are not controlled into Wales from the EU between 1 January and 30 June 2021, you must account for import VAT on your VAT return if you either:
- delay your customs declaration
- use a simplified customs declaration to make a declaration in your own records
How to complete your customs declaration before accounting for import VAT on your VAT Return
If you use software or the Customs Handling of Import and Export Freight (CHIEF) system to declare your customs duties, you’ll need to:
- enter either the EORI number (which includes your VAT registration number) into box 8 (Header Consignee) or, if applicable, the VRN in box 44h (Registered Consignee) of the declaration
- enter ‘G’ as the method of payment in box 47e
If you use the Customs Declaration Service to declare your customs duties you need to enter your VAT registration number at header level in data element 3/40.
VAT will be recorded against your EORI and will be at declaration level only.
If you act on behalf of someone else
If you’ve been authorised to act on behalf of your client, you must use their EORI number or VAT registration number on the customs declaration.
If you import goods in consignments not exceeding £135 in value
Further guidance will be provided on the VAT treatment of goods in consignments not exceeding £135 in value in a later update.
After the goods have been imported
You’ll need to account for import VAT when you complete your VAT Return
Resources and information
Wales and the UK has left the EU, and the transition period after Brexit comes to an end this year. For current information, read: Paying VAT on imports, acquisitions and purchases from abroad
HMRC have provided guidance on managing your import VAT on parcels.
VAT registration in the EU
If you trade in goods and decide to hold stock in an EU country for supply to your EU customers, you will need to register for VAT in that country. Dependant on the country where your stock is, you may also be required to appoint a Fiscal Representative who is jointly liable for any VAT you may owe.
Your business should consider
Do you know which country would be best suited to support your supply chain to EU customers/suppliers?
Do you have access to bank guarantees required by Fiscal Representatives?
Does your business model allow enough margin to absorb the increased costs these new processes will bring?
Resources and information
Detailed guidance on business taxation and VAT: VAT: detailed information
If you are a business that is stockpiling? Have you checked with your insurer or insurance adviser on whether you are still fully insured?
There will usually be a limit on cover for stock on the premises under commercial contents policies. While there may be cover for temporary fluctuations, firms should check that any additional stock can be covered by increasing the sums insured. If transporting extra stock, you should also check your commercial motor or goods-in-transit policy.
If you are temporarily storing additional stock or raw materials off site in a warehouse, check the cover under your commercial policy, and the extent of any cover provided by the warehouse firm.
Check the policy terms and conditions to see if there are any restrictions on the amount of stock or raw materials that you can hold, and the way in which they are stored as, for example, there could be an increased risk of fire. If unsure then talk to your insurer or insurance adviser.