One of the questions asked of Stockport accountants, IN Accountancy, is will Brexit bring VAT changes?
While there are still a lot of questions surrounding when the UK will separate from the EU and what changes that might bring, overall it seems unlikely that trading rules will change substantially as the UK will still want to trade freely with the EU.
In order to go ahead with exiting the EU, the UK needs to activate Article 50. The Conservative party has recently announced that Article 50 will be triggered March 2017. After activation, there will be negotiations lasting two years, so the start of 2019 is probably the earliest date for leaving the EU.
The type of Brexit we will have, will be determined by whether we have a ‘hard’ or ‘soft’ Brexit. Essentially, a ‘hard’ exit will result in trade being governed by World Trade Organisation rules rather than EU rules and ‘soft’ will mean we would remain in the European Economic Area, in return for paying into EU budgets and accepting the movement of goods, services, capital and people.
After exiting the EU, the UK will have more control over rates and regulations. Therefore, the likelihood that some of the zero-ratings that were under threat from the EU might be kept in place, and could even be extended.
If the UK government wishes to stay within the European Economic Area (EEA), there will be few changes to VAT as we would remain linked to the EU . However, if the UK decided not to remain within the EEA, we wouldn’t be bound by EU VAT changes. To keep it simple to trade with the EU, the UK is unlikely to change any major VAT regulations.
Going forward, it seems likely that businesses would no longer have to complete EC Sales lists or Intrastat Dispatches returns which would mean the distance sales thresholds would be unlikely to apply (so businesses would be able to zero-rate ‘B2C’ sales). Also, the VAT return would be reduced as box 2, 3, 8 and 9 would no longer be required.
Sales of goods to the EU would still be zero-rated, but it wouldn’t be required for businesses to secure a customer’s VAT number in order to zero-rate supplies. Businesses would, however, be required to treat the sales as exports. B2C sales are currently subject to VAT but they would be zero-rated.
No VAT would apply to businesses supplying services into the EU, as they would be able to act outside the scope of VAT. This might also apply to B2C services which are currently subject to standard rated UK VAT.
Other potential changes
There would likely be a new obligation for businesses supplying B2C electronic downloads to register for the ‘non-union’ MOSS scheme, rather than the current system adopted at the moment. This new system would require businesses to register for VAT in one EU member state and submit a ‘non-union’ MOSS return.
Goods acquired from the EU would be treated in the same manner as imports from outside the EU, and no longer treated as EU acquisitions. Therefore, there would no longer be a stipulation to account for acquisition tax on the UK VAT return. However, import VAT would be payable at the point of importation. As a result of the import VAT, businesses buying from the EU would have a slight cash flow disadvantage.
On the other hand, services purchased from the EU would not have VAT restrictions but UK businesses would have to report VAT under the reverse charge procedure. Subsequently, staying broadly the same as it is today.
As this is a very technical area, we are just highlighting likely changes but please contact us firstname.lastname@example.org or ring 0161 456 9666 for advice and help in this area.