The tax impact of BREXIT Part 2 – VAT

Part 2 of my BREXIT tax review focusses on Vat, which will be the main tax area impacted by the UK’s impending exit from the EU.

The main BREXIT tax focus is on VAT of course, because this is a tax that crosses borders and the UK has been part of a so-called unified VAT system within the EU for the past 40 odd years. If we leave the EU then there must inevitably be some impact on our VAT regulations, unless we agree to remain in the single market, which doesn’t look likely in the long term.  Indeed, all the focus leading up to 29 March was on what will happen in the event of a no deal exit, particularly relating to the cross-border movement of goods.

There are effectively three very different types of trade that are impacted by EU VAT:

• cross border movement of goods
• intra-EU supplies of services
• and online supplies of electronic services

It is the supply of goods that is most significantly impacted, with import/export procedures having to be put in place in respect of trading with the EU.  This has a vast array of impacts, including:

• customs duty rates having to be set on EU goods
• border checks required on EU goods leading to more Customs staff being required and slower movement of goods at the points of entry into the UK (similarly for export to the EU)
• many UK businesses that have never needed to before having to grapple with import/export regulations
• funding of import VAT
• duty deferment accounts having to be set-up
• a rush to register for EORI (Economic Operator Registration and Identification) numbers
• and the list goes on…

It remains to be seen what will happen to the cross-border supply of services.  There is currently an extensive EU-wide code that determines how to treat the myriad of different service supply scenarios.

Perhaps this will be adopted in full by the UK, but there is no guarantee the EU will allow this.  The alternative is that the UK becomes an exporter from the EU’s perspective, but I am not sure this will work practically.  Hence, perhaps a new approach will be required.

For the suppliers of electronic services, the position is relatively clear.

If the UK leaves the EU without a deal, then these businesses will need to register for VAT in another EU country in order to utilise the MOSS system.  This significantly simplifies VAT administration for these businesses, so its utilisation is really a must.

I hope this whistle stop tour through Brexit and taxes leaves you feeling better informed, but if you have more questions, please contact me.

Brian Jukes is Dafferns Corporate Tax Partner and is a specialist in UK and cross border taxes.