The im­pact of Brexit on VAT

What will the gov­ern­ment do with VAT when free of EU reg­u­la­tions? DAVID FIDDY pon­ders the op­tions

EDP Norfolk - - Finance - David Fiddy, VAT con­sul­tant at As­ton Shaw

The pos­si­bil­ity of VAT on food, gam­bling, books, news­pa­pers and pri­vate ed­u­ca­tion can’t be ruled out

I HAVE been sur­prised by the num­ber of peo­ple that I meet who are not aware that VAT is a wholly Euro­pean sales tax. The rules and ba­sis of VAT are en­shrined in Euro­pean leg­is­la­tion of which the UK ver­sion is purely a copy.

When we Brexit the EU, VAT will cease to be con­trolled by Brus­sels and will be moulded to our own fis­cal and so­cial needs. The ar­eas most likely to be af­fected are those cov­ered by the zero rate and ex­emp­tion re­lief.

These are the ar­eas of so­cial and hu­man­i­tar­ian well­be­ing and are pro­tected from VAT by EU leg­is­la­tion. In a broad sweep it in­cludes hous­ing, health­care, ed­u­ca­tion, fi­nance and in­sur­ance.

The EU has en­sured for the past 40 years that these ar­eas are ring fenced and pro­tected. Fol­low­ing Brexit, the UK gov­ern­ment will be re­quired to take on the role of UK VAT ‘po­lice­man’ but will be free to select their own ar­eas of tax­a­tion.

Bear in mind it was a Bri­tish gov­ern­ment de­ci­sion to im­pose VAT on gas, elec­tric­ity and heat­ing sup­plies. They also im­posed an In­sur­ance Pre­mium Tax on in­sur­ance prod­ucts that are ex­empted from VAT by the EU.

The pos­si­bil­ity of VAT on food, gam­bling, books, news­pa­pers and pri­vate ed­u­ca­tion can’t be ruled out. To date, and since its in­tro­duc­tion in Europe in 1967, VAT has been a well-reg­u­lated and sta­bil­is­ing force for the gen­eral ben­e­fit of the pop­u­la­tion at large.

Even if it has not been uni­ver­sally pop­u­lar for driv­ers, smok­ers and drinkers it has formed a pro­tec­tive um­brella around ba­sic so­cial needs. Af­ter Brexit that um­brella will be re­moved and the re­sults are po­ten­tially harm­ful un­less the VAT reg­u­la­tions are tightly drawn.

What will hap­pen to VAT post Brexit is an area for much spec­u­la­tion and dis­cus­sion but one thing is cer­tain; the man­ner in which the tax is gov­erned will be open to change as never be­fore. It is hoped that fu­ture UK gov­ern­ments will main­tain the gen­eral ben­e­fits avail­able through the present sys­tem and trust to the Bri­tish courts to de­ter­mine the ex­tent to which sweep­ing changes may be judged to be fair and rea­son­able.Š

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