Brexit & VAT – Update
With White Papers published by both the Welsh and the UK government arriving in the inbox it was with some concern that on reading both, no mention of VAT in a post Brexit environment was to be found.
With all the confusing levels of commentary appearing in the press it’s important that all organisations have a clear understanding of the actual VAT backdrop against which the Brexit negotiations will be taking place.
VAT delivered over £116bn to the UK Treasury in 2016 and the VAT regulations as they currently stand impact on all types of organisations not just the business community. Those who are in the Public Sector, such as local authorities and government departments, as well as in the charitable sector whether that is as a University, College, Housing Association or the mainstream Charity sector are all affected.
If we are to consider what a “good” VAT system should look like in the post Brexit world we need to understand how EU legislation currently influences the UK’s administration of VAT. Hence our concern that the White Papers make no reference to VAT at all!
Over the 43 years since VAT arrived in the UK the tax has certainly increased in its complexity and arguably inequalities of VAT treatment have been created which the Brexit process provides a catalyst to review.
The Charity sector in the UK currently bears an annual irrecoverable VAT cost of £1.5bn for example. The differing VAT treatments applied mean that a local council run sixth form CAN recover all its VAT on its costs where as a College of Further Education CANNOT – even though they may deliver the same A ‘Level course in effect.
There are 28 members state of the European Union of which the UK is one and these 28 states all benefit from being in the same VAT territory. This delivers a core VAT treatment on income liabilities and VAT recovery legislation across the 28 states.
These 28 EU states are also part of the “Single Market” which enables tariff free movements of goods but there are additional countries in the “Single Market” structure who are NOT in the EU for VAT purposes: - Norway, Iceland, Liechtenstein and Switzerland.
As a member of the EU VAT territory, whilst the UK is bound by EU VAT legislation, it also accesses VAT Simplifications to facilitate trade – an example of which is the Triangulation simplification. This simplification enables a UK business; in a supply chain between its EU supplier in, say, France and its EU end customer in Poland; to avoid having the cost and administrative burden of having to VAT register in Poland as a UK business acquiring goods there – when those goods are shipped directly to Poland by the French supplier.
Such simplification measures may be lost to the UK on leaving the EU VAT territory.
This opportunity to revisit the way in which VAT impacts on UK businesses may also bring the ability to simplify VAT management in the UK – the removal of EU control over UK VAT liabilities and rate setting is an aspect many raise - along with no further need to complete wide ranging statistical declarations such as Intrastat’s and EU Sales Lists. The question not yet answered is what a replacement VAT system will look like?
Centurion are running short VAT & Brexit Updates which not surprisingly have been oversubscribed. Businesses are starting to put together Brexit project teams to consider not just the potential impact on accounting systems and VAT management but also the impact on their corporate structure across the EU and the supply chains implications.