Andrew Needham looks at the VAT consequences of leaving the EU, and the likely timescales.
It is still far from clear when the UK will separate from the EU. However, it is quite likely that most trading rules and taxes will not change materially, as the UK will want to continue to trade freely with the EU.
In order to leave the EU, the UK needs to activate Article 50 of the Lisbon Treaty. Once Article 50 has been activated there is a negotiation process lasting two years that will lead to the UK leaving the EU. Therefore, the start of 2019 is probably the earliest date for an EU exit, so nothing will change until them.
All change!
Once the UK leaves the EU we will have more freedom to set our own VAT rates, so it is likely that some of the zero-ratings that were under threat from the EU will remain in place, and could be extended.
If the UK remains in the EU Single Market, our VAT system will remain very closely linked to the EU system and any charges will still apply to the UK. If the UK decided not to remain in the single market, we will not be bound by any changes to the EU VAT regime, but will have reduced access to the EU markets. However, to make it as simple as possible to trade with the EU, the UK is unlikely to change any of the main VAT regulations.
Businesses will no longer have to complete EC Sales lists or Intrastat Dispatches returns, and the distance sales thresholds will be unlikely to apply, so businesses should be able to zero-rate ‘B2C’ (business to consumer) sales. The VAT return will be simplified as box 2, 3, 8 and 9 will no longer be required.
Sales of goods to the EU will still be zero-rated, although businesses will not be required to obtain the customer’s VAT number in order to zero-rate supplies but will, however, be required to treat the sales as exports. B2C sales should therefore be zero-rated, whereas they are currently subject to VAT.
Businesses supplying services into the EU will continue to be able to treat them as outside the scope of VAT, and no VAT will apply. It is likely that this treatment will also apply to supplies of services to private individuals (B2C), which are currently subject to standard rated UK VAT.
Other possible changes
Businesses supplying B2C electronic downloads into the EU will be required to register for the ‘non-Union’ MOSS scheme, rather than the current system. This will require affected businesses to register for VAT in one EU member state and submit a ‘non-union’ MOSS return.
Goods purchased from the EU will no longer be treated as EU acquisitions, and will be treated in the same way as imports from outside the EU. There will, therefore, no longer be a requirement to account for acquisition tax on the UK VAT return, but import VAT will be due at the point of importation. This will add a small cashflow disadvantage for UK businesses buying from the EU. Intrastat Arrivals returns will no longer be required.
Services purchased from the EU will not be subject to VAT, but UK businesses will still have to account for VAT under the reverse charge procedures. This will, therefore, remain broadly the same as it is today.
Practical Tip:
In general terms, leaving the EU is likely to reduce administrative burdens on SMEs, but there may also be some cashflow disadvantages for businesses buying goods from the EU. Most other rules will probably remain broadly unchanged.
