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January 20th 2019

Brexit: VAT implications

With the prospect of a "no deal" Brexit still very real, businesses need to prepare for the possibility that the UK might leave the EU on 29 March without a deal.

From a taxation perspective, VAT is one area that would see immediate changes. UK businesses who trade solely within the UK and do not buy or sell goods or services across borders are unlikely to be directly affected, but those who do trade across borders (including with the Republic of Ireland) would be affected.

Under current VAT rules:

  • VAT is charged on most goods and services sold within the EU;
  • VAT is payable by businesses when they bring goods into the UK, with different rules depending on whether the goods come from an EU or non-EU country;
  • Goods that are exported from the UK to non-EU countries or EU businesses are normally zero-rated so that no VAT is charged at the point of sale;
  • Goods that are exported from the UK to EU consumers (as opposed to businesses) normally have UK or EU VAT charged, subject to the distance selling thresholds; and
  • Supplies of services are charged according to the "place of supply" rules; under the general rule, supplies to businesses are normally deemed to take place where the recipient is based; whereas supplies to consumers are normally deemed to take place where the supplier is based - though there are many exceptions to the general rule.

The government has said that, in the event of a no deal Brexit, it will aim to keep VAT procedures as close as possible to the existing arrangements. There would, however, be some immediate changes to the rules and procedures governing transactions between the UK and EU member states.

Accounting for import VAT on goods imported into the UK

If the UK leaves the EU without an agreement, the government will introduce postponed accounting for import VAT on goods brought into the UK, meaning that importers will be able to account for import VAT on their VAT returns, rather than paying the import VAT when (or soon after) the goods arrive at the UK border. This will apply to imports from non-EU countries as well as EU countries.

Seperate rules will apply for goods entering the UK as parcels sent by overseas businesses.

For vehicles imported into the UK, the Notification of Vehicle Arrival System (NOVA) will continue to operate, and the DVLA will not register a vehicle brought into the UK for use on UK roads unless it has a valid NOVA notification or it has been registered using the DVLA secure registration scheme.

Accounting for export VAT on goods exported to the EU

If there is a no deal Brexit, the distance selling rules will no longer apply to UK businesses. Instead, UK businesses will be able to zero-rate the export of goods to EU consumers. EU member states would probably treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries, with import VAT and other duties becoming due when the goods arrive into the EU.

The export of goods to EU businesses (as opposed to consumers) will continue to be zero-rated, and whilst UK exporters will need to retain evidence of the goods having left the UK, EC sales lists will no longer need to be completed. UK businesses should check the relevant import VAT rules in the member state concerned.

UK businesses selling goods in an EU member state to customers in that country

UK businesses will be able to continue to sell goods that they have stored in an EU member state to customers in the EU, in line with current rest of world rules. This means they would require to be VAT registered in the the EU state(s) in which the sales are being made.

Accounting for VAT on services supplied into the EU

If the UK leaves the EU without an agreement, the main UK "place of supply" rules will continue to apply to UK businesses, with some modifications.

Businesses engaged in providing digital services to consumers in other EU member states will no longer be able to use the UK's Mini One Stop Shop scheme (MOSS), but will be able to register for the MOSS non-union scheme in an EU member state - though this can only be done after the UK leaves the EU. The non-union MOSS scheme requires businesses to register by the 10th day of a month following a sale, so businesses making a sale between 29 and 31 March 2019 and wishing to register for the non-union scheme would need to register by 10 April 2019.

Further guidance is available in this note, or contact our tax team today.

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