The VAT implications of Brexit will vary depending on a deal or no-deal scenario. Here is our current guidance.
Postponed VAT accounting on imports
Postponed accounting for import VAT will be introduced if the UK leaves the EU without a deal. This means that instead of paying VAT at the time of importation for goods from the EU or elsewhere, businesses will pay via their VAT returns, thereby creating a cash flow benefit.
Low-value consignment relief (LVCR)
The LVCR would no longer apply to parcels arriving in the UK from the EU. EU27 businesses sending parcels valued at up to £135 would be required to register for and charge UK VAT at the point of purchase, using an HMRC digital solution. This would involve the EU27 businesses registering, accounting and paying online.
On goods worth more than £135 sent as parcels, VAT would continue to be collected from UK recipients in line with current procedures for parcels from non-EU countries.
European Commission Sales List (ESL)
UK businesses selling goods to the EU27 would no longer be required to complete an ESL but would need to retain evidence of the goods having left the UK.
Exporting UK goods to the EU27
UK businesses would need to check the import VAT rules in the relevant EU27 member state concerned and pay accordingly. The EU27 member states are likely to treat imports from the UK in the same way as they do imports from any other non-EU country.
For many business-to-business transactions with the EU27, it is likely that the customer will be obliged to pay local import VAT and deal with the necessary customs formalities at import. This may make UK-sourced goods less attractive. Some UK businesses with a large EU27 customer base are actively looking at setting up warehouses in an EU27 member state. This way they way would continue providing their customers with goods that are in free circulation within the EU27.
UK-based businesses selling goods to private individuals in the EU27 may be faced with the obligation to register for VAT in one or more EU27 member state.
In theory, a no-deal Brexit could lead to enhanced VAT recovery by certain financial institutions, as supplies made outside the EU27 would allow for VAT to be recovered on related costs. For UK businesses supplying insurance and financial services to an EU27 member state, input VAT deduction rules might be changed.
Selling digital services to EU27 member states
Currently, EU businesses selling digital services to another EU member state pay VAT via what is known as a Mini One-Stop Shop (MOSS). They simply pay their local VAT rate, rather than that of the EU member states they are selling to.
Non-union MOSS is where a non-EU business registers in an EU member state to take advantage of VAT MOSS. Hence, UK businesses could consider registering in a non-EU MOSS scheme.
The border between Northern Ireland and Eire would form the border between the EU area and the UK. As yet, no solution or potential solution has been identified.
The V all and end all
Separating the UK VAT system from EU VAT law would, for the first time in many years, give the UK government a tool for social policy by extending the various reliefs available or restricting some exemptions. While such fundamental changes would be possible post-Brexit, this does not appear to be a high priority for the government.
The UK government is trying to reassure UK businesses that the impact of a no-deal Brexit on their VAT affairs will be minimal. However some changes, especially for businesses exporting goods to the EU27, are inevitable. The services sector will probably see fewer changes, although UK-based businesses selling electronic services to private individuals in the EU27 may face some significant new challenges.
As with almost every aspect of the Brexit process, there will be winners and losers. If postponed VAT accounting for all imports is introduced, it will be a welcome and somewhat unexpected boost for imports from outside the EU27. However, whatever the final arrangements for Brexit are, the coming few years will no doubt see major changes to the UK VAT system.
One thing is certain: VAT is not going to be abolished any time soon!