VAT Implications of a No-Deal Brexit

The Government has started to publish a series of guides on how to cope with Brexit in the event that no deal is reached with the EU.  One of these is titled "VAT for businesses if there's no Brexit deal" and a second is titled "Trading with the EU if there's no Brexit deal".

The guidance note starts by saying that the "no-deal" scenario is considered to be unlikely but sets out some details on how businesses can prepare.  Preparations to be made if there is a deal will of course depend on the terms of that deal so at this point that is harder to forecast.

The document confirms that the UK will continue to have a VAT system after 29 March 2019 even if there is no deal, with VAT rules relating to UK domestic transactions continuing to apply to businesses as they do now.

The aim is to keep VAT rules and procedures as close as possible to what they are now to provide continuity to businesses, however if there is no agreement there will have to be some changes to VAT rules and procedures that apply to transactions between the UK and EU member states.

Import
For UK businesses importing goods from EU countries the current rules for imports from the rest of the world will also apply to imports from the EU. Postponed accounting for import VAT will be introduced meaning 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 goods arrive at the border.

The document says that, to ensure equity of treatment, businesses importing goods from non-EU countries will be able to account for import VAT in the same way.  VAT will still be payable on goods entering the UK as parcels sent by overseas businesses.

Export
A no-deal Brexit will mean that UK businesses will be able to zero rate sales of goods to EU consumers. VAT registered UK businesses will continue to be able to zero-rate sales of goods to EU businesses but will not be required to complete EC sales lists.

As UK VAT registered businesses will not be required to complete an EC sales list, there will be changes to how these sales are recorded. Those 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. Most businesses already maintain this evidence as part of current processes and the required evidence will be similar to that ​currently required​ for exports to non-EU countries.

​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. Individual EU member states may have different rules for import VAT for non-EU countries and import VAT payments may be due at the border when importing goods.

Place of supply rules
The main VAT place of supply rules will remain the same for UK businesses and will continue to apply in broadly the same way that they do now. For UK businesses supplying digital services to non-business customers in the EU the place of supply will continue to be where the customer resides. VAT on services will be due in the EU member state within which the customer is a resident.  Any businesses that use the MOSS system will need to change to the "non-Union MOSS scheme" instead of the current HMRC portal.

Internet Links:
VAT for businesses if there's no Brexit deal
​Trading with the EU if there's no Brexit deal