Prepare your SAP for no-deal Brexit

22 January 2020

No-deal Brexit would bring significant implications on VAT rules and procedures that apply to transactions between the UK and EU member states. In this blog post, we are providing a high-level overview of forecasted legal changes and their impact on SAP system.

Have you taken action?

Companies should get their businesses ready to revise processes of goods flow between the UK and the EU after Brexit. It is important to: 

• design processes for EORI number validation
• revise import and export declaration filing process
• check the rate of tax and duty for goods
• analyse VAT impact
• plan changes to the IT and ERP landscape.

Trade between the UK and EU members states to be treated as imports and exports with non-EU members.

New system for validating UK VAT numbers will come into use (currently developed by HMRC). Distance selling regime will no longer apply for UK businesses exporting to EU consumers. In case of B2B sales, obligation to complete EC sales list will be replaced by evidence storage regulations similar to those that apply for exports to non-EU countries. As a result, SAP EU sales listing in the UK will become obsolete after Hard Brexit. UK businesses will be able to continue to sell goods they have stored in an EU member state to EU customers in line with current Rest of World rules. Businesses that sell digital services to consumers in the EU will be able to register for the MOSS non-Union scheme. UK businesses will also lose access to the EU VAT refund system.

Legal changes require changes to SAP master and transactional data configurations

These changes require thorough review of both master and transactional data. To ensure master data compliance with legislative changes, SAP owners should review tax codes in SAP, configurations of withholding tax and changes of tax classifications. On transactional data level, no-deal Brexit will create a need for manual adjustments of all documents created before Brexit. It is also important to properly configure tax determination for future postings and ensure that correct withholding tax code is used. No-deal Brexit will also affect the status of special EU processes in SAP, namely, "Plants abroad" functionality and treatment of EU triangulation.

Postponed accounting for import VAT on goods brought to the UK

To mitigate the consequences of hard Brexit, the UK  government will introduce postponed accounting for import VAT on goods brought into the UK, allowing UK VAT registered businesses to pay import VAT on their VAT return rather than upon goods arrival. It will apply for imports of parcels over £135.

As a result, VAT on imports from all countries should be accounted for in the VAT100 return for submission to HMRC. Prompt changes to the labelling and elements of some of the boxes in VAT100 return in SAP will be needed.

Changes to business and operation models

Businesses might also decide to relocate a plant or a warehouse due to the changes in the business model or operations processes. Other changes caused by logistic chain optimisation (e.g. change of central warehouse location) might require changes in SAP configuration.

No-deal Brexit will create need for multiple configurations, review and updates of internal guidelines and user training. It also increases the need for tax analytics solutions that would allow to assess whether configurations were set correctly.

We are ready to assist you with implementing SAP configurations and tax technology solutions in compliance with legislative changes, planning changes to IT and ERP environments, user training, as well as provide broad tax consulting services.

By Jari Kärkkäinen and Alexandra Shtromberg