We have had so many other things to worry about this year, Brexit has pretty much dropped to the bottom of the list. It doesn’t help that Brexit is still such an unknown quantity. What will happen at the end of the transition period? Will there be a deal? What happens if we leave with no deal? It is now getting alarmingly close to new rules kicking in from 1 January. As at the date of writing there are only 40 days to go. We can’t really avoid it for much longer – here is our take on Brexit and what will happen with VAT.
Could VAT disappear altogether?
The UK had to introduce VAT as one of the conditions of joining the EEC back in 1973. It has been an inescapable part of life ever since. Theoretically we could abolish VAT altogether after we leave the EU. Realistically though as the country will be struggling with the economic impact of COVID-19 for years to come there must be little to no scope to get rid of a tax that generated £130 billion in 2019-20.
It is much more likely that the government will just tweak the rules. As a country we have not had the freedom to abolish VAT on items that just aren’t viewed as luxuries. The Chancellor has already announced that “tampon tax” will be abolished from 2021.
Trading with the EU
If you are a UK based business and you don’t sell into, or buy from, the EU then you won’t see a lot of change on 1 January. The biggest issues will be centred around trading with the EU. We will look at goods and services separately as they are treated quite differently from a VAT perspective.
Supplying services into the EU
We will just look at the general rules, not the exceptions, or this would be a ten thousand word essay!
Assuming we aren’t just denied access into the EU market altogether (which could be the case for financial services, for example) the impact on VAT of leaving the EU shouldn’t be too dramatic. There may be some changes to what has to be reported, or other procedural changes, but right now we have no visibility over what those might be.
Selling into other businesses
VAT on B2B sales is governed by complicated “Place of Supply” rules. The general rule for B2B sales is that the supply of services is made where the customer belongs. This means if you supply services into a business in Germany, you don’t charge UK VAT. That won’t change with Brexit. If the sale wouldn’t have triggered a local VAT registration requirement under the current rules, it shouldn’t do so after 1 January 2021.
Selling to customers
VAT on B2C sales is also determined by the Place of Supply rules. The general rule for B2C sales is that the supply of services is made where the supplier belongs. If you sell to a customer (not a business) in Germany, then you would charge UK VAT as normal.
The Mini-One-Stop Shop, or VAT MOSS, applies to the sale of digital services in the EU. MOSS allows suppliers of digital services to account for all EU VAT through a single portal, which is significantly easier than having to register for VAT in every EU country you sell digital services into. After we leave the EU it is very likely that VAT MOSS won’t be available in the UK. If you sell digital services you will then have to either register for VAT in every relevant EU country, or register under a non-union MOSS scheme in another member state. The Republic of Ireland will likely be the best option as at least we have a common language!
Supplying goods into the EU
This is where things start getting really tricky. Lets assume that you currently sell goods to a business in Germany. There are currently no border controls, and import / export declarations are not required. You don’t charge any UK VAT (assuming you have got the German business’s VAT registration number), and instead they declare the VAT on their German VAT return under the reverse charge. This is a slightly odd process where they add on VAT at their local rate, and then take it off again, so overall there is no VAT paid. You will then report the sale on an EC Sales List, and you may also have to submit Intrastat declarations if you meet the threshold.
Post Brexit you still won’t charge any UK VAT, assuming you have proof of export. An export declaration will be required. When the goods arrive in Germany then an import declaration will also likely be required. Import VAT will be payable, together quite possibly with other customs duties. If your customer acts as the importer you won’t need to register for VAT in Germany. If you act as the importer then you may also have to register for VAT in Germany and account for German VAT.
Ugh! The only good news is that EC Sales Lists (and Intrastat declarations) will become a thing of the past.
What do I need to do?
The first thing you need to do is to work out what areas will impact on you and your business. The government has got lots of guidance available. Complete their transition questionnaire to get a personalised list of actions. If you are exporting goods to the EU then you will have the most to do. Again the government guidance is your best starting point. If you don’t already have one then you will urgently need to apply for an EORI number, which should come through within a week.
We are gradually starting to add more information on Brexit on our website so check back over the next few weeks. There are lots of other areas to look into, but one of the most immediate Brexit impacts on you as a business owner is what will happen with VAT.