VAT and Brexit: Imports, Exports, Services, and Northern Ireland

Since the Brexit transition period ended on 31 December 2020, the VAT rules after Brexit treat the UK as a third country for EU tax purposes. Goods moving between Great Britain and the EU are now imports or exports rather than intra-community movements, services follow place-of-supply rules that can shift where tax is due, and Northern Ireland sits under a separate arrangement through the Windsor Framework. The UK standard rate stays at 20%, with a 5% reduced rate on items like home energy and a zero rate on essentials such as most food and children’s clothing.¹ What changed is the machinery around cross-border trade.

Importing Goods from the EU

Bringing goods from any EU country into Great Britain is now legally an import under the Value Added Tax Act 1994. It triggers the same customs process that applies to goods arriving from anywhere else in the world.² Import VAT is charged at the rate that applies to the specific goods, which for most commercial products is 20%.¹

To move goods across the border you need an Economic Operators Registration and Identification (EORI) number. It is mandatory for any business moving goods between Great Britain and other countries, including the EU.³ Without one, shipments stall at ports. You also need to file customs declarations through the Customs Declaration Service for each consignment entering the country.⁴

Customs Duty and Import VAT Are Separate

Customs duty and import VAT are two different charges. Customs duty depends on the type of goods, identified by commodity codes, and their country of origin. The government’s Trade Tariff tool gives the applicable rate once you supply details about the product type, its materials, and how it was produced.⁵ For non-excise goods worth £135 or less, no customs duty is charged.⁶

Import VAT is then calculated on top of the customs value. That value includes the cost of the goods, shipping and insurance to the first UK destination, and any customs duty or excise duty payable on importation.⁷ The duty you just paid gets folded into the amount on which VAT is calculated. Getting the commodity code wrong affects both charges, so classification is worth working through before the first shipment.

Postponed VAT Accounting

Paying 20% import VAT upfront on every shipment and waiting for HMRC to refund it would crush cash flow. Postponed VAT Accounting (PVA) lets you declare and recover import VAT on the same VAT return, so no money changes hands at the border.⁸ For any regular importer, this is effectively how you have to operate.

To use PVA your business must be VAT-registered in the UK, and the imported goods must be for use in your business. You include your VAT registration number on the import declaration and make sure your EORI number is linked to the Customs Declaration Service. A non-established taxable person (a business without a UK base) must appoint someone to handle customs on its behalf, and that agent must complete the import declaration.⁸

Each month HMRC generates a postponed import VAT statement through the Customs Declaration Service. Download and keep a copy of every statement; they are your evidence for the amounts declared and recovered on your VAT return.⁹ One restriction: PVA is not available for goods received through the post via Royal Mail in consignments over £135, unless Royal Mail is acting as an express operator.⁸

Exporting Goods to the EU

Goods exported from Great Britain to EU destinations qualify for zero-rating, meaning you charge 0% VAT on the sale, but only if you meet HMRC’s conditions in full.² Zero-rating is not automatic. It has to be evidenced.

The core requirement is proof of export. You must obtain valid evidence that the goods physically left the UK within three months of the time of supply. Miss that deadline and you are required to account for output VAT at the standard rate in the period when the time limit expires.¹⁰ Acceptable evidence includes customs declarations supported by departure messages from the Customs Declaration Service, commercial transport documents such as bills of lading or air waybills, and supporting records like invoices and bank statements showing payment.

Using a freight forwarder or courier does not shift responsibility. You remain legally responsible for meeting the export conditions. The agent must complete customs formalities, export within the time limits, and send you valid evidence.²

VAT on Cross-Border Services

Services follow different rules from goods. The place of supply determines which country gets to tax the service, and the answer depends on whether the customer is a business or a consumer.

Business-to-Business

For most services sold between businesses, the reverse charge applies. When a UK business buys services from an EU supplier, the UK business accounts for VAT on its own return rather than the EU supplier charging UK VAT. This covers all services purchased from suppliers outside the UK, unless the supplier has a UK VAT registration number.¹¹ The EU supplier avoids UK registration, and the UK business can typically recover the VAT on the same return, making the net cost zero.

Business-to-Consumer

When a UK business sells services directly to EU consumers, the general rule is that VAT applies where the supplier is established. There are important exceptions. Professional services like legal advice, consulting, and financial services provided to consumers outside the UK are generally treated as supplied where the customer belongs, which can take them outside the scope of UK VAT.

Use and Enjoyment Overrides

Both the UK and EU member states can apply “use and enjoyment” provisions that override the normal place of supply rules for specific service categories. HMRC applies these rules to telecom services, electronically supplied services, and insurance repair services in B2B contexts, and to the hiring of goods, hiring of transport, and broadcasting services in both B2B and B2C transactions.¹¹ If the service is actually used and enjoyed in the UK, it may be pulled into UK VAT even when the general rules would place it elsewhere.

Northern Ireland and the Windsor Framework

Northern Ireland sits in a different position from the rest of the UK. Under the Windsor Framework, it remains within the EU’s single market for goods while staying part of the UK’s VAT system for services.¹² The dual status exists to avoid a hard border on the island of Ireland.¹³

In practice, goods moving between Northern Ireland and the EU are still intra-community supplies, not imports or exports. No customs declarations, no import VAT at the border. Businesses trading in Northern Ireland use an XI prefix on their VAT registration number when dealing with EU customers and suppliers.¹⁴ You also need a separate XI EORI number, which requires having a GB EORI number first.¹⁵

Green and Red Lanes

Goods moving from Great Britain to Northern Ireland pass through one of two lanes. The green lane, formally the UK Internal Market Lane, is for goods staying in the UK. Since May 2025, businesses registered under the UK Internal Market Scheme that qualify to declare goods “Not at Risk” of entering the EU no longer need to submit customs declarations or pay customs duty for those movements.¹⁶

To qualify for the green lane, your business must be based in or have a fixed establishment in Northern Ireland, hold an XI EORI number, keep records accessible within Northern Ireland, and confirm the goods are for final use by UK consumers. Businesses with turnover up to £2 million can declare goods “Not at Risk” even if the goods undergo commercial processing, with specific exceptions for food, construction materials, and healthcare supplies.¹⁷

The red lane applies to goods destined for the EU, including the Republic of Ireland, and to goods deemed “at risk” of crossing the border. These face full EU customs checks and tariffs. If you move goods through the red lane but can later prove they stayed in the UK, you can reclaim paid EU duties through a duty reimbursement scheme. Getting the lane wrong triggers compliance consequences from both UK and EU authorities.

Selling to UK Consumers from Overseas

The UK abolished Low Value Consignment Relief after Brexit. The current system draws a line at £135. For goods sold directly to UK consumers in consignments valued at £135 or less, VAT is charged at the point of sale rather than at the border.¹⁸ The £135 figure applies to the total consignment value, not individual items within it.

Online marketplaces carry significant liability. When a platform facilitates sales from overseas sellers, the marketplace itself becomes the “deemed supplier” for VAT purposes. The platform must collect and remit VAT to HMRC, covering both consignments under £135 from overseas and goods of any value already located in the UK and sold by overseas businesses.¹⁹ If a transaction exceeds £135 and no marketplace handles it, standard import procedures apply at the border, with the recipient responsible for VAT and any customs duty.

Registration Threshold

A UK business must register for VAT once its taxable turnover exceeds £90,000.²⁰ Businesses below that level can register voluntarily, which makes sense if you import goods regularly and want to recover input VAT. Overseas businesses selling goods in the UK may need to register regardless of turnover, particularly if they store inventory in the UK or make sales that are not handled by an online marketplace acting as the deemed supplier.

Penalties and Records

HMRC replaced the old default surcharge system in January 2023 with a penalty points regime for late VAT returns and a separate structure for late payments.

Late Submission

Each late VAT return earns one penalty point. You receive a £200 penalty when you hit the threshold for your filing frequency:

Monthly returns: 5 points
Quarterly returns: 4 points
Annual returns: 2 points

After you reach the threshold, every subsequent late return triggers another £200 penalty. Points reset to zero only if you submit all returns on time for a compliance period (six months for monthly, twelve for quarterly, twenty-four for annual) and HMRC has received all returns due in the previous twenty-four months.²¹

Late Payment

Late payment penalties work on a two-stage system. If your VAT payment is between 16 and 30 days overdue, HMRC charges 3% of what you owed at day 15. At 31 days overdue, you pay an additional 3% of the balance still outstanding at day 30, plus a daily penalty accruing at 10% per year on the remaining balance until you pay in full.²² Late payment interest also runs from day one.

Errors on returns that cause a loss to HMRC carry their own percentage-based penalties, with reductions available for unprompted disclosure before HMRC finds the mistake.²³

Record Retention

All VAT records must be kept for at least six years. That includes invoices, import declarations, postponed VAT statements, export evidence, and commodity code classifications. If six years of storage creates serious expense or space problems, you can ask HMRC for permission to keep some records for a shorter period, but you need approval before destroying anything.²⁴

1
GOV.UK. VAT Rates
2
GOV.UK. VAT on Goods Exported from the UK (VAT Notice 703)
3
GOV.UK. Get an EORI Number – Who Needs an EORI
4
GOV.UK. Subscribe to the Customs Declaration Service
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GOV.UK. Trade Tariff – Look Up Commodity Codes, Duty and VAT Rates
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GOV.UK. Tax and Customs for Goods Sent from Abroad
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GOV.UK. Working Out the VAT Value Using the Customs Value of the Imported Goods
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GOV.UK. Check When You Can Account for Import VAT on Your VAT Return
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GOV.UK. Get Your Postponed Import VAT Statement
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GOV.UK. Conditions for Zero Rating – Time Limits for Removing Goods
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GOV.UK. VATPOSS15100 – Use and Enjoyment – Introduction
12
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13
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14
GOV.UK. Register for VAT – Selling or Moving Goods Between Northern Ireland and the EU
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GOV.UK. Get an EORI Number – Apply for an EORI Number That Starts with XI
16
InterTradeIreland. Windsor Framework Changes May 2025
17
InterTradeIreland. The UK Internal Market Scheme
18
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GOV.UK. VAT and Overseas Goods Sold to Customers in the UK Using Online Marketplaces
20
GOV.UK. How VAT Works – VAT Thresholds
21
GOV.UK. Penalties for Failure to Pay VAT on Time from 1 January 2023 – Overview
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GOV.UK. How Late Payment Penalties Work if You Pay VAT Late
23
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24
GOV.UK. Record Keeping (VAT Notice 700/21)