How will VAT be affected by a no-deal Brexit?

How will VAT be affected by a no-deal Brexit?

The debate regarding Brexit seems to have no end, but the prospect of the UK leaving the EU with no deal in place persists.

In preparation for this, the Government has published a paper that outlines the potential implications to VAT should the country leave without a deal.

Below is a summary of the potential outcomes:

Exporting goods to EU nations

Following a no deal Brexit, businesses in the UK will need to check the import VAT rules in the relevant member state concerned and pay accordingly.

Imports from the UK will be treated like any goods from any other country outside the EU and as such any business-to-business transactions will require customers to pay local import VAT and deal with the necessary customs formalities at import.

As an alternative, many larger businesses are looking to set up warehouses or subsidiaries in member states, allowing for continuity of trading to EU member states post-Brexit.

However, UK-based businesses selling goods to private individuals may be obliged to register for VAT in one or more of the remaining 27 EU member states.

VAT accounting on imports

The Government has confirmed that accounting for import VAT in the event of a no deal Brexit will be postponed. This rule will apply to imports both from within and outside the EU.

Businesses will be no worse off than they are under the current system and for imports from outside the EU they will benefit from removing the obligation to pay import VAT on the arrival of goods. However there will be additional Customs burdens in the form of duties payable and extra documentation and checks at borders.

Low-value consignment relief (LVCR)

Parcels arriving from the EU will no longer benefit from low-value consignment relief (LVCR). Under the new system, businesses sending parcels valued at up to £135 would be required to register for and charge UK VAT at the point of purchase. The Government is intending to introduce an online system to deal with this..

Goods worth over £135 sent via a parcel would continue to see VAT collected from UK recipients in line with current procedures for parcels from non-EU countries.

Finance and Insurance

Those providing insurance or financial services to EU member states could see input VAT deduction rules change. A no-deal Brexit could lead to enhanced VAT recovery by certain financial institutions, as supplies would allow for VAT to be recovered on related costs.

Digital services

Businesses currently selling digital services to another EU member state pay VAT via the Mini One-Stop Shop (MOSS).

UK businesses will no longer be eligible for the Union MOSS in a no deal Brexit and will have to switch to the non Union version of the MOSS.

There is no doubt that some businesses will face changes to their VAT affairs as a result of a no deal Brexit and as such, should begin to make preparations.

This will particularly be the case for businesses trading directly with other EU member states, although those involved in trade in goods are likely to be far more affected than those that offer services.

If you are concerned about the prospect of a no deal Brexit and how it will affect your reporting, recording and payment of VAT, speak to our team at UK VAT Advice today.