VAT on a No Deal Brexit: Key Guidance
With a no deal Brexit still a possibility, we look at two key pieces of guidance on VAT in a no deal scenario, and what it means for businesses and legal advisers.
If no withdrawal agreement can be approved by parliament and the UK leaves the European Union without a deal, UK businesses will be left trading with the remaining EU members states in much the same way as they trade outside of the EU in relation to how they apply customs, excise and VAT procedures to goods and services. With VAT a complex area of indirect taxation, guidance on the position if there is no deal Brexit will prove invaluable.
Law Society Guidance
The Law Society’s No-deal Brexit guidance: VAT highlights the implications for civil and commercial cooperation if we leave without a deal. In that scenario, the UK would immediately leave the EU without a transition period. The Law Society succinctly summarises the implications for VAT and the supply of goods and services, notably:
• The UK will become a ‘third country’ and, as far as goods are concerned, the VAT rules currently applying to supplies of goods to and from third countries will generally apply to supplies to and from the EU post Brexit. To ease the initial additional burden of import VAT, government says it would introduce postponed accounting for import VAT on goods brought into the UK - whether from the EU or elsewhere.
• Where businesses supply services to clients in EU member states, the current rules for the place of supply of services will generally apply as if suppliers of services to an EU customer were to a third country customer.
• All goods entering the UK as parcels sent by overseas businesses will be liable for VAT and, for exporters, import VAT and customs processes are likely to apply to goods on entry to the EU.
• 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 in which the customer is a resident.
• For UK suppliers of insurance and financial services, changes might be made to the input VAT deduction rules for those services where they are supplied to the EU.
• Some businesses selling digital services to EU consumers will want to continue using the VAT Mini One Stop Shop (MOSS) system, in which case they will need to register for the VAT MOSS non-Union scheme in an EU member state.
• UK businesses will still be able to claim VAT refunds from EU member states, but using the existing processes for non-EU businesses.
HMRC Guidance
You may also benefit from what HMRC says. In its guidance, HMRC sets out the rules and processes around cross-border payments and refunds of VAT if no deal has been agreed on Exit Day – particularly on claiming EU refunds and using the MOSS scheme. Key takeaways from this guidance include:
• Any business wanting to use the EU VAT refund electronic system to submit a VAT refund claim for 2018 must do it ahead of Exit Day – and certainly, as soon as possible given the increasing risk of a no deal Brexit.
• Businesses should consider starting to prepare by understanding the refund process for each EU Member State, for example, the deadlines, any requirement to supply a certificate of taxable status and the need to appoint a tax representative.
• Businesses currently registered in the UK with the EU VAT MOSS scheme will be automatically deregistered after Exit Day and should register with the non-Union scheme by the tenth day of the month following the first sale after Exit Day. Alternatively, a business can register in each EU Member State where sales are made.
• Also, note that there is no threshold for supplies of digital services to consumers in EU member states. This means businesses will no longer be able to take advantage of the existing £8,818 annual threshold exemption for cross border sales of digital services to EU consumers.
What does this mean for you?
Government’s view is that there will, in fact, be no change to VAT rules for most UK businesses. For those which will be affected if we leave without a deal, the implications could mean significant additional administrative burdens.
Therefore, it is wise for all businesses to ensure that they are familiar with the VAT issues that could well arise on a no deal Brexit. We strongly recommend you take note of the formal guidance available and, where necessary, take specialist advice on how your VAT position could be affected on Brexit – if and when it finally takes place.
If you would like us to cover an issue in the next NGM Tax Law Newsletter, we would be pleased to hear from you