Two years ago, Richard McGlashan, VAT Manager, wrote an article about the VAT implications of Brexit, in which he gave his view of the likely impact of the end of the transition period on 31 December 2020.
Suffice to say, the time since then has been tumultuous, not least for the occupants of 10 Downing Street. In the world of VAT, a few things have become clear and certain unforeseen challenges have arisen.
As was clear from the beginning, the most fundamental result of Brexit was that the United Kingdom ceased to be part of the same VAT area as the remaining 27 European Union Member States.
This is of particular relevance to goods that move between the two jurisdictions, a primary example being aircraft. An aircraft can no longer gain free circulation in the EU via a UK or Isle of Man importation, and vice versa. For business jets that seek to transport passengers and/or cargo in both jurisdictions, dual importations may be necessary.
An upshot of Brexit is that Temporary Admission (TA) has now become available to UK/IOM owned assets entering the EU, subject to meeting the TA conditions; similarly, EU owned assets can now take advantage of the UK TA rules. Care however needs to be taken where structures straddle both jurisdictions, such as where an aircraft is owned by a UK company, but the ultimate beneficial owner is resident in the EU.
Location, location, location
One consideration, the importance of which only became clear in retrospect, was the location of goods when the Brexit transition period ended on 31 December 2020 (at 11pm GMT to be precise). Interpretation differs on this point, but EU guidance strongly implies that the location of a good at this moment determined in which jurisdiction it would retain free circulation afterwards.
Conversely, some VAT practitioners contend that in fact the jurisdiction through which the good was originally imported takes precedence, regardless of the good’s location on 31 December 2020.
There is still therefore ambiguity here, but our recommendation is to re-establish a good’s free circulation status in either or both the UK and EU if there is doubt that its pre-existing VAT status persists.
Returned Goods Relief: an open question
It was felt before the end of the transition period that Returned Goods Relief (RGR) would be a relatively straightforward answer to the free circulation question. RGR rules enable goods that have previously enjoyed free circulation to re-establish that right, subject to meeting certain qualifying criteria within a specified time period.
In reality, we have observed some hurdles, seemingly designed to prevent RGR from being the simple solution that was envisaged. We have found that HMRC in the UK have pragmatically accepted RGR claims, but EU Member States have insisted on the presentation of an export certificate before they will authorise a return for non-EU owned or registered aircraft under RGR. Where an aircraft lost its EU free circulation for example, simply by being in the UK on 31 December 2020, no export certificate will exist, so such a condition cannot be met. As such, a new full importation, may be required for the aircraft where TA is not available.
There has also been uncertainty as to whether the same aircraft could claim RGR in both the UK and the EU. In principle, we see no reason why this should not be possible, however, as noted above, claiming RGR in the EU has not proven to be so straightforward.
At Equiom, we have invested a considerable amount of time to identify a solution for business jet owners and operators alike who wish to import their aircraft within the UK, and/or the EU, while mitigating the potential VAT cost. We are pleased to confirm we have implemented tried and tested solutions and are happy to have a no-obligation discussion on this with you or your clients should this be of interest.
If you require further information or advice about any VAT queries, please contact Richard McGlashan. Read more about Equiom’s EU aircraft importation offering here.