VAT rates: what’s next for an independent UK?

A Europe-wide VAT regime should have meant a harmonised, integrated VAT system. But this didn’t prove to be the case. So what next for an independent UK?

The single market failed to bring the promised consistent VAT regime across all 28 member states of the European Union, with significant differences to be found, for example, in VAT rates across the EU.

Malta has a standard rate of just 18%, for instance, while Hungary’s is significantly more at 27%. But a post-Brexit economy may actually bring a tax landscape based on simpler policies driven by a domestic agenda.

Of course, Article 50 hasn’t been activated yet, so our departure from the EU is not yet a reality. But I have noted a sense of shock over the Channel, so once the UK begins to negotiate its Brexit, we may find we don’t get everything we ask for, including on tax.

Easing the burden

 If the UK becomes completely independent of the EU, it will have more control over tax matters. The government would want to create a fiscal platform to enable businesses to trade, at least on a level playing field, but perhaps at an advantage to get the economy running again.

So, what measures could be put in place to help SMEs stay competitive post-Brexit? One area could be raising the VAT threshold from £83,000 up to £250,000 to help ease the tax burden on small businesses.

We could also see an easing of importing and exporting red tape, such as the removal of EC Sales Lists and Intrastat regulations. We could also see the scrapping of EU invoicing requirements and extension of the VAT cash accounting scheme to help make doing business that little bit easier for SMEs in the UK.

Taking care of taxes

Certain indirect taxes, such as air passenger duty, landfill tax, climate change levy and insurance premium tax, are domestic taxes, so should not be unduly affected by Brexit. Customs duty, on the other hand, is almost entirely governed by EU legislation and so will likely be the biggest area to be affected by Brexit.

The political arena will dictate to a great extent what happens, and most of my clients are carrying on with business as usual as there is currently no way to know how the VAT landscape will shift in a post-Brexit world.

What would you like to happen next?