Navigating the impact of Brexit on VAT

‘Brexit’ - shorthand for the UK leaving the European Union (EU) – is firmly on the agenda. Ayuk Ntuiabane, Director of VAT at Equiom looks at what this means in practice and what impact it will have on VAT

The implications of the UK lying outside the EU are likely to be less significant for taxation compared with other policy areas. This is because taxation is largely a Member State competence. The major exception to this generalisation is indirect tax, primarily VAT, for which there is a substantive body of EU law establishing common rules across Member States.

There are a number of EU-wide special regimes relating to the common treatment of transactions, which will have to fall away with Brexit. This is especially so if by leaving the EU the UK also leaves the pan-EU common system of VAT and the Customs Union.

In that event, the UK will become a ‘third country’ dealing with the other 27 EU Member States like any other non-EU country does currently:

• Goods sent from businesses in the UK to EU Member States will be treated as exports rather than dispatches
• Services provided by businesses in the UK to EU Member States would be ‘exported’ rather than intra-community. These may or may not have financial impact, but the compliance obligations would certainly change
• Goods bought from EU suppliers would become imports rather than acquisitions, and would be cleared as such; but services bought in from EU businesses would continue to be reverse charged
• The Mini-One-Stop-Shop (MOSS) currently used by EU businesses providing electronic services to consumers in the UK and vice versa to account for output tax on relevant B2C transactions would no longer be available. Such EU businesses may have to register for VAT in the UK and the UK businesses would have to register and account for VAT in an EU member state
• The scheme for the cross-border refund of VAT between EU Member States would also change with the UK lying outside. This would be substituted by the Thirteenth Directive scheme which currently operates between the EU and third countries, to the extent that the UK and the EU agree to such reciprocity

Thus it would be a safe bet to assume that with VAT it will be business as usual in the lead up to Brexit and even beyond, but the movement of goods and the provision of services between the UK and the EU is likely to be impacted. How big the impact will be will depend on what alternative arrangements the UK agrees with the EU.

If you are worried about the impact of Brexit on your business, contact Ayuk at ayukntuiabane@equiomgroup.com