‘Don’t Panic Mr. Mainwaring’ was the famous phrase of Lance Corporal Jones from the 1970’s BBC comedy ‘Dad’s Army’ – usually said when Jonesy was in a state of panic.
Following the Brexit vote on 23 June, some appear to be in a state of panic, others backing away from the campaign they lead, and others further still demanding a further referendum. However we voted, it is more than likely that Article 50 of the Treaty of Lisbon will be activated, meaning at that point the UK must leave the EU within 2 years.
So when the UK does leave, what will happen to VAT? Well as a follow up to my blog post back in April about Brexit, here are some of things that may happen because of the Brexit.
VAT is Here to Stay…we think
Don’t Panic – VAT is more than likely here to stay. As I stated in my earlier post, in 2015/16, £111.4 Billion was raised through VAT, making it the third largest earner for the Treasury, and therefore there is little chance of VAT being abolished.
As the UK is also a member of the OECD, which itself has a VAT model based upon the EU model, and with more and more countries adopting a VAT system of sorts, it would seem very strange for the UK to abolish VAT.
The name may change if we have a very pro Brexit nationalist Prime Minister to Goods and Services Tax, but the actual model should not change, nor the way in which it works.
Power to the People…well MPs
VAT is currently a tax that is governed by Europe – although we have the VAT Act 1994 as the main UK Act of Parliament for VAT, the contents of this act are derived from the Principle VAT Directive.
This means that when the Brexit it happens, the UK will have freedom to change any of the VAT provisions that it currently has in force.
So, should we expect to suddenly see everything zero rated? Well not likely – in fact I suspect that there will be very few changes, but in theory, anything could be changed.
All Change Please…on the EU Front
Don’t panic – the only real changes that businesses may notice is when trading with EU customers. Depending on what trade agreements are signed with the remaining member states of the EU, it is more than likely that some of the VAT rules will change, particularly with the sales of goods.
The VAT Treatment of goods depends on who you are selling to:
- If you sell to VAT registered customers outside the UK within the EU, then provided the condition are met, the supply is zero rated; and
- if you sell to non-VAT registered customers outside the UK within the EU, then you charge VAT at the appropriate rate for the goods
Once Brexit has been done, in theory anything sold to the EU will be an export, and provided the export conditions are met, then everything could be zero rated.
But watch selling to non-VAT registered traders – the distance selling rules will still apply in Europe, meaning if you breach the threshold in a particular member state, you will need to register for VAT there.
EC Sales list will be dead…long live the VAT Return!
It is more than likely that both the EC sales list and Intrastat reporting will be abolished. These are both EU single market reporting requirements, and if we are no longer part of the single market, then we won’t need to complete them.
The VAT return may also change again, but don’t panic – you may not have noticed but there are 2 boxes at the bottom of the return numbered 8 and 9 – Box 8 is for zero rated sales of goods to the EU, and box 9 for acquisitions of goods from the EU.
As these boxes are related to EU VAT reporting, these could be removed from the VAT return.
One of the major changes that may come about because of Brexit is the removal of two simplifications that prevent a UK business from having to register for VAT in EU member states: where goods are installed and triangulation.
Now for the boring bit – some VAT law. If your supply includes installing immovable goods, then the place of supply is where those goods are installed – the simplification allows the customer to account for the VAT for you.
The other simplification is Triangulation – where you buy goods form member state to be sent straight to another member state, triangulation stops you having to be registered in the destination member state.
Both of these rely on the transaction taking place within the EU – so you may have polish up on your German, French Spanish etc., and potentially register for VAT in up to 27 member states
Though there may be some changes to come, in particular with trading with the EU, I cannot see that a huge amount will change will happen – yes we will have the freedom to change things, but if the treasury makes too many changes, it may lose out on VAT, although there will be more room for ‘political’ VAT changes to be made.
if you are concerned on how Brexit may affect your business, then please get in touch.