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Brexit and VAT

By Ensors Team
1st Sep 2016

Hypothetically, VAT could be abolished following Brexit as it was introduced as a condition of joining the EU.  However, most people consider that an abolition of VAT is so unlikely that it can be discounted as a possibility as VAT rises just short of £120 billion per annum.  

Leaving the EU will remove constraints upon the UK and it will have the freedom to decide where transactions arise and what rate of VAT, if any, applies.  However, EU VAT rules will not change. UK businesses with a VAT liability elsewhere in Europe will still need to take steps to remain compliant with local VAT rules.

How will businesses be affected?

The most significant changes for suppliers of goods will be procedural. Under current rules, if a UK business buys or sells goods from or to a French business there are no border controls and import/export declarations are not required. 

In a post Brexit world these transactions are likely be treated in the same way as imports and exports to and from countries outside the EU resulting in additional paper work and a potential cash flow cost.

Whether there is an additional tax cost will depend on whether the EU imposes additional taxes at the point of entry to France.  However, there will almost certainly be a commercial impact. 

The Mini-One-Stop Shop (MOSS) package currently allows suppliers of services within the EU to account for all EU VAT through a single UK portal. After the UK leaves the EU it is unlikely this scheme will be available in the UK and affected businesses will either have to register for VAT in every EU country in which they supply services or register under a non-union MOSS scheme in another Member State.

What should you do now?

f you are considering new lines of business or significant investment then it would be prudent to consider VAT related points now.