There has been almost endless speculation about how businesses trading between the United Kingdom and the European Union will be affected by Brexit.
Helpfully, in a recently published online document, the European Union outlined the likely value-added tax consequences of Brexit.
Current VAT Rules
Significantly, VAT is the only tax that is substantially harmonised at EU level under the VAT directives, meaning that the same broad framework applies in all 28 member states. While this framework is by no means simple, harmonisation does mean that the same rules generally apply to transactions made within the EU, regardless of the member states of the supplier and the consumer.
Post Brexit it is presumed that the UK would no longer be part of this framework, meaning that different VAT rules could apply to goods and services supplied from the UK to the EU and vice versa. This could therefore have important ramifications for businesses.
Post-Brexit VAT Rules
The EU has said that subject to any transitional arrangement that may be contained in a possible withdrawal agreement, as of the withdrawal date (currently 30 March 2019), the EU rules in the field of customs and indirect taxation (VAT and excise duties) will no longer apply to the UK.
According to the EU guidance, this has the following consequences as of the withdrawal date:
- Goods entering the VAT territory of the EU from the UK or are dispatched or transported from the VAT territory of the EU to the UK will be treated as imports or exports of goods respectively. The means VAT must be charged at importation, although exports will not be subject to VAT.
- UK businesses supplying telecommunications, broadcasting, or electronic services to consumers in the EU will have to register for the VAT MOSS scheme in an EU member state. This scheme was introduced in every member state, including the UK, to simplify compliancewith VAT on business-to-consumer sales, preventing the need for traders to register for VAT in the member states of all their customers.
- UK businesses purchasing goods and services, or importing goods subject to VAT in an EU member states, would have to claim refunds under a 1986 EU law that deals with VAT refund claims by taxable persons not established in the EU. At present, such refunds can be filed electronically under a directive introduced in 2008, which governs VAT refunds between EU member states.
- UK businesses carrying out taxable transactions in the EU may be required to appoint a tax representative in an EU member state, who would be liable for the payment of VAT.
The guidance suggests more administration for businesses trading between the UK and the EU for excise purposes. This is because movements of excise goods to the UK will require an export declaration as well as an electronic administrative document. Also, excise goods moving in the opposite direction will have to be released from customs formalities before a movement under the computerised system for monitoring the movement of excise goods under duty suspension in the EU can begin (known as the Excise Movement and Control System).
Complying with VAT rules is likely to put some pressure on resources for companies making and receiving supplies to and from the UK and other EU member states. However, as UK VAT law is expected to mirror EU rules after Brexit, the system will be familiar and compliance with same should not therefore be too onerous.