Deal or No Deal?
Listed Under: Blog
We look at what a ‘no deal’ Brexit scenario could mean for us
There are mutual interests for the UK and EU in negotiating a win-win deal for Brexit, but the government has also thought about what will happen in the case of a ‘no deal’ outcome in March 2019. One area for consideration is the implications of VAT rules for goods traded between the UK and EU member states, which has been covered in the UK Government’s paper VAT for businesses if there’s no Brexit deal.
Overall, a no deal scenario would mean that existing VAT simplification measures between the UK and EU would come to an end. Supplies of goods to and from the EU would be treated as imports and exports, with different reporting, payment and refund implications. The UK VAT system would largely emulate existing procedures with non-EU countries.
For UK businesses importing goods from the EU, a no deal scenario would mean that rules for imports from non-EU countries would apply. The government would introduce what they call ‘postponed accounting’ for goods imported into the EU, meaning that UK VAT registered businesses can account for import VAT on their VAT returns, rather than paying when the goods reach the UK border. Another area affected by a no deal scenario is parcels sent by overseas businesses. Low Value Consignment Relief will be abolished for all parcels arriving from EU and non-EU member states. Parcels will be subject to import VAT on entering the UK, unless they are zero-rated goods.
When UK businesses export goods to the EU, businesses will continue to be allowed to zero rate sales of goods – EC sales lists will no longer be required. Any exports to private individuals will be zero rated. For services supplied into the EU, insurance and financial services rules may change in terms of input tax deduction rules, but HMRC have yet to clarify. For businesses supplying digital services to the EU, the place of supply will remain the same as currently, where the customer resides. VAT refund systems to claim refunds of VAT from EU member states will still exist, but will follow the processes for non-EU businesses. Some EU member states may be slow at issuing refunds to non-EU member states and therefore UK businesses need to be aware of this impact on their cashflow.
Making Tax Digital
The UK formally leaves the EU the month before HMRC introduces its Making Tax Digital programme in April 2019, which will require UK businesses to submit their VAT returns online. Businesses should continue to prepare for this change regardless of the outcomes of EU negotiations