The issue of Brexit is inescapable at the moment and with only 7 months to go until the deadline, it’s on our minds too. Accounting Web ran an interesting article last week exploring what may happen to VAT rules if there is a ‘no deal’ Brexit.
First of all, it’s worth pointing out that HMRC has published guidance entitled VAT for businesses if there’s no Brexit deal. They say that this is an unlikely scenario but given the way things are progressing, it is definitely worth exploring. However, as expected, there is a lack of clarity on the government’s desired position. Much of the guidance simply states the consequences for any country of being outside the EU VAT area.
As highlighted in the article, the government has said that in the event of a no-deal Brexit it will introduce “postponed accounting for import VAT”. In the words of the guidance: “this means 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 time that the goods arrive at the UK border”. Many have predicted that this would happen, partly to minimise the need for infrastructure at the Irish and French borders. What fewer predicted is that the government would go further and apply postponed accounting for all imports, not just those from the EU27 member states.
What the government appears to be saying is that traditional import VAT (i.e. collecting VAT at the point the goods enter the VAT area) is not necessary in a VAT system. It will be interesting to see how potential fraud is tackled in this scenario.
The reason why this is looking like a likely scenario is that by implementing postponed accounting, the government could speed things up at borders and avoid creating substantial delays.
EC sales lists
EC sales lists would become a thing of the past for UK businesses. There will be no need to complete these lists but businesses should retain evidence to prove that goods have left the UK.
In the event of a ‘no deal’ Brexit, the government has said that it is also abolishing Low Value Consignment Relief (LVCR), not just for imports from the remaining EU countries, but worldwide. This means that goods entering the UK as parcels sent by overseas businesses will be liable for VAT, unless the items shipped are already exempt or zero rated.
The guidance explains that: “for parcels valued up to and including £135, a technology-based solution will allow VAT to be collected from the overseas business selling the goods into the UK. Overseas businesses will charge VAT at the point of purchase and will be expected to register with an HM Revenue & Customs (HMRC) digital service and account for VAT due.” At the present time, it is unclear what the ‘technology-based solution’ is and how it may work. It is also unclear how overseas businesses will engage with the UK VAT system sufficiently to register and engage with the whole process?
The guidance says “For UK businesses supplying insurance and financial services, if the UK leaves the EU without an agreement, input VAT deduction rules for financial services supplied to the EU may be changed. We will update businesses with more information in due course” While this is unclear at the moment, one important difference is that this will be a different approach to EU countries and those based outside the EU; elsewhere in the guidance, where changes are generally to apply to all countries other than the UK.
The Irish border currently has no barriers, but once the UK leaves the EU, the Northern Irish border will form the edge of the EU area. Unfortunately, the guidance only says “The UK would stand ready to engage constructively to meet our commitments and act in the best interests of the people of Northern Ireland, recognising the very significant challenges that the lack of a UK-EU legal agreement would pose in this unique and highly sensitive context”. There is certainly no firm guidance on what will happen at the border post Brexit.
VAT Mini One Stop Shop (MOSS)
The guidance contains a reminder for digital businesses to register for the VAT MOSS non-Union scheme in an EU Member State after the date the UK leaves the EU.
Tour Operators Margin Scheme (TOMS)
The government plans to work with the travel industry to minimise the impact of the disappearance in the UK of the EU Tour Operators’ Margin Scheme.
It is difficult to draw many conclusions from the guidance at this stage. The only thing that is looking likely is that postponed accounting will come into force. However, how this will be effectively managed and monitored is still unclear.
We will aim to regularly update our clients whenever we have more news on how the Brexit process may affect your business. Keep an eye on our website, our LinkedIn page and for our newsletters. In the meantime, if you have any questions, please get in contact with us.