VAT for businesses if there’s no Brexit deal

Posted in Tax

On 23 August, the UK government published guidance on how VAT rules for UK businesses trading with EU member states would work if the UK leaves the EU on 29 March 2019 without a deal. It is no surprise that the UK will continue to have a VAT system after it leaves the EU.  The notice is clear that the VAT rules relating to domestic transactions will not change.  For cross-border transactions with EU member states, the government’s stated aim is to keep the VAT regime as close as possible to its current form.  The guidance sets out areas where there will be change.

If the UK leaves the EU without an agreement, VAT will be payable on goods entering the UK in the same way as currently payable for imports from non-EU countries. Goods exported from the UK to EU businesses will continue to be zero-rated.  EC sales lists will no longer be required for exports but UK businesses will need to retain evidence that the goods have been exported. Sales to non-business customers will also be zero-rated and the current distance selling rules will no longer apply. It is expected that EU member states will treat goods entering the EU from the UK in the same way as goods entering from non-EU countries, i.e. as subject to import VAT.

To ease cash flow concerns, ‘postponed’ accounting will be introduced for goods imported into the UK enabling businesses to account for VAT in their VAT return rather than having to pay it when or soon after the goods arrive at the UK border.

The position for cross-border refunds will be more complicated as UK businesses will no longer have access to the EU VAT refund system.  UK businesses will continue to be able to claim refunds of VAT from other EU member states but will need to use the processes used in each member state for non-EU businesses.  These processes vary so businesses will need to make themselves familiar with all the relevant regimes.

The ‘place of supply’ rules for services supplied by UK businesses will remain broadly the same but for banks and insurers it is important to note that the input VAT deduction rules for businesses supplying financial services to the EU may be changed.  At present, a supply of financial services to a person belonging outside the EU carries a right to recovery of related input VAT whereas a supply to a person belonging in the EU does not. The government’s concern may well be the cost to the exchequer of increased input VAT recovery if supplies to the EU are treated the same way as non-EU supplies.  No detail has yet been provided and banks and insurers will want to monitor this area carefully. 

For UK businesses supplying digital services to non-business customers in the EU, VAT will continue to be due in the EU member state where the customer is a resident. The UK VAT Mini One Stop Shop (MOSS) which enables EU businesses selling digital services to consumers in other EU member states to report and pay VAT in a single return and make payment in their home state will no longer be available. Businesses will need to register for the VAT MOSS non-Union scheme in an EU member state or register in each EU member state where sales are made.”

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