Brexit and VAT

In the recent referendum the UK, including Wales, voted to leave the EU. While nothing much is expected to happen in the short term regarding VAT, once the Government has triggered Article 50 of the Lisbon Treaty to formally confirm that we are leaving negotiations, will begin in earnest to agree the terms and process of our exit. It is said that negotiations are likely to take place over a 2-year period but possibly they may take more or less time than that, we just don’t know yet.

During the period of negotiation and until they are concluded, the UK is still part of the EU and accordingly we would expect that it must continue to be bound by EU VAT legislation, European Court Judgements on VAT and also reporting requirements, including VAT returns, ESL returns for both goods and services and Intrastat returns.

When the UK does leave the EU, it may be that we agree to keep some of the VAT simplifications we have now and some changes may be phased in over time but there are likely to be significant changes for VAT and as many of these will merit business’ attention, well before the exit date. It is worth highlighting the ones that spring to mind at this early time. Some or all of the areas highlighted may change:

• The UK will no longer be bound by EU VAT law – will this affect past EU VAT decisions that have concerned UK businesses or will it be that we ignore future ones?

• As a result of UK government decisions our existing VAT rates may change and we could see the introduction of VAT on items that previously did not charge VAT

• In the EU, the UK enjoys the free movement of goods – when we leave, depending on whether we enter into special trade agreements with the EU, we may return to the need to complete Customs clearance for both exports and imports. There will be systems, time and financial costs connected with this.

• Financial costs may include agents’ fees for clearance, duty costs for imports, import deferment bank guarantee costs

• Proof of export documentation changes

• No Intrastat returns. No ESL returns for goods

• Changed rules for certain services bought from the EU – local, non UK VAT being charged instead of the current reverse-charge rules that apply to many services

• Changed UK VAT rules for supplying services to the EU

• UK sellers of goods and digital services to private individuals based in EU countries will lose the benefits of the distance selling rules and MOSS arrangements and have the increased burden of EU VAT registrations.

• Increased need to register for VAT in EU countries if simplifications for supplies of goods such as those that often apply now for call-off stocks, triangulation and supply and install contracts disappear.

• Change in procedures for reclaiming overseas VAT

As you would expect, we will be keeping a close eye on the changes as more details are announced and will include updates in our future newsletters.