No-deal Brexit could complicate VAT

As we move towards a possible ‘no deal Brexit’, the Government is publishing guidance in case the UK leaves the EU on March 29 with no agreement, in order – it says - to minimise disruption and ensure a smooth and orderly exit.

Here, we look at the implications for VAT rules for goods and services traded between the UK and EU member states.

After March 29, if there’s no deal, there is little doubt that the UK will continue to have a VAT system: the revenue that VAT provides is vital for funding public services. The VAT rules relating to UK domestic transactions will continue to apply to businesses as they do now. However, if the UK leaves the EU with no agreement, then there will be some specific changes to the VAT rules and procedures that apply to transactions between the UK and EU member states.

The Government intends to introduce postponed accounting for import VAT on goods brought into the UK. This means that UK VAT registered businesses importing goods to the UK will be able to account for import VAT on their VAT return, rather than paying import VAT on, or soon after, the time that the goods arrive at the UK border. This will apply both to imports from the EU and non-EU countries.

VAT will be payable on goods entering the UK as parcels sent by overseas businesses, unless they are already relieved from VAT under domestic rules, for example zero-rated children’s clothing. For parcels valued up to and including £135, a technologybased solution will allow VAT to be collected from the overseas business selling the goods into the UK. On parcels worth more than £135, VAT will continue to be collected from UK recipients in line with current procedures for parcels from non-EU countries. If the UK leaves the EU without an agreement, distance selling arrangements will no longer apply to UK businesses who will be able to zero rate sales of goods to EU consumers.

Current EU rules would mean that EU member states will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries, with associated import VAT and customs duties due when the goods arrive into the

EU. UK businesses will not be required to complete an EC sales list but will need to retain evidence to prove that goods have left the UK, to support the zero-rating of the supply. For UK businesses supplying services into the EU, the main VAT ‘place of supply’ rules will remain broadly the same as now. UK businesses will continue to be able to claim refunds of VAT from EU member states but in future they will need to use the existing processes for non-EU businesses.