What happens to VAT if there is no deal?

Last month, the Department for Exiting the European Union issued guidance on how to prepare for Brexit if there is no deal.

ACCA issued a statement highlighting the main impact on the VAT situation once UK is out of the European Union on 29 March 2019. The aim of the guidance is to ensure that it builds more certainty and confidence in the business world. Initially within this guidance, 25 notices are published with more to follow in the near future.

Current VAT rules

  • VAT is charged on most goods and services sold within the UK and the EU
  • VAT is payable by businesses when they bring goods into the UK. There are different rules depending on whether the goods come from an EU or non-EU country
  • goods that are exported by UK businesses to non-EU countries and EU businesses are zero-rated, meaning that UK VAT is not charged at the point of sale
  • goods that are exported by UK businesses to EU consumers have either UK or EU VAT charged, subject to distance selling thresholds
  • for services the ‘place of supply’ rules determine the country in which you need to charge and account for VAT.

Proposed VAT rules after 29 March 2019 if there’s no deal

The government’s aim will be to keep VAT procedures as close as possible to what they are now. Main highlights include the VAT changes that businesses will need to prepare for when:

  • importing goods from the EU
  • exporting goods to the EU
  • supplying services to the EU
  • interacting with EU VAT IT systems such as the VAT Mini One Stop Shop (MOSS)
  • any other matters.

The main announcements include:

1 Import VAT on goods imported into the UK

In a no deal scenario the current rules for imports from non-EU countries will also apply to imports from the EU. The government will 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. A separate guidance ‘Trading with the EU if there’s no Brexit deal’ is added to provide further details.

All goods entering the UK as parcels sent by overseas businesses will be liable for VAT (unless they are already relieved from VAT under domestic rules, for example zero-rated children’s clothing).

Import VAT will be payable on vehicles imported into the UK. Nevertheless certain reliefs will also be available as with current imports of vehicles from non-EU countries.

2 UK businesses exporting goods to the EU

Consumers: Distance selling arrangements will no longer apply to UK businesses. UK businesses will be able to zero rate sales of goods to EU consumers.

Businesses: VAT registered UK businesses will continue to be able to zero-rate sales of goods to EU businesses. But they will not be required to complete EC sales lists. UK businesses exporting goods to EU businesses will need to retain evidence to prove that goods have left the UK, to support the zero-rating of the supply similar to non-EU countries’ exports. As each country would have its own customs rules, UK businesses should check the relevant import VAT rules in the EU Member State concerned.

UK businesses selling their own goods in an EU Member State to customers in that country will continue to be required to register for VAT in the EU member states where sales are made in order to account for the VAT due in those countries.

3 UK businesses supplying services into the EU

The current main VAT ‘place of supply’ rules will remain the same for UK businesses.

Digital services: UK businesses supplying digital services to non-business customers in the EU, the existing B2C ‘place of supply’ rule will continue to operate. VAT on services will be due in the EU member state within which the customer is a resident.

Insurance and financial services: It is possible that input VAT deduction rules for financial services supplied to the EU may be changed. More information will be updated in the due course.

4 EU VAT IT systems

The UK will stop being part of EU-wide VAT IT systems such as the VAT Mini One Stop Shop (MOSS).

MOSS: Businesses that want to continue to use the MOSS system will need to register for MOSS non-union scheme in an EU member state. The non-union MOSS scheme requires businesses to register by the 10th day of the month following a sale. You will need to register by 10 April 2019 if you make a sale from the 29 to 31 March 2019 and by 10 May 2019 if you make a sale in April 2019.

EU Tour Operators’ Margin Scheme: The Tour Operators Margin Scheme is an EU VAT accounting scheme for businesses that buy and sell on certain travel services that take place in the EU. HMRC expects a minimum impact on this scheme in a no deal situation.

5 Other matters

EU VAT refund system: 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 EU member states by using the existing processes for non-EU businesses.

EU VAT registration number validation: UK businesses will be able to continue to use the EU VAT number validation service to check the validity of EU business VAT registration numbers. UK VAT registration numbers will no longer be part of this service. HMRC is developing a system so that UK VAT numbers can continue to be validated.

As all the above changes may or may not materialise, we will keep members informed about the updates. In the meantime it is still worth considering these changes when talking to clients and analysing their possible impact.

Related links:

Full guidance for VAT can be found on gov.uk/VAT

Collection of guidance on how to prepare for Brexit if there is no deal is on gov.uk/how to prepare

Article from ACCA In Practice