What VAT issues need to be considered?

The UK has left the European Union and is in the transition period until 31 December 2020. During the transition period the rules for VAT remain the same as before exit. The government’s latest news for the transition period is published here.

Practical VAT aspects

Import VAT & cashflow

  • Acquisition & dispatch (reverse charge) becomes import / export
  • Cash flow impact of VAT due on importation
  • Payments on Account - potential impact on traders exceeding the £2.3m threshold where imports are included.
  • Postponed accounting (reverse charge) – this would have been introduced in a no-deal scenario but now requires a fresh ministerial decision which may or may not be dependent on future negotiations with the EU. Postponed accounting means that import VAT is declared in the VAT return rather than at the time of import so is a cash flow  easement for importers. If there is no postponed accounting an increase in duty deferment guarantees may required.
  • Refund schemes for overseas VAT: shift from digital EU portal (8th Directive) to paper-based Non-EU process (13th Directive). Reciprocity is required.  Possible delays in receiving refunds.

EU simplifications & changes

  • EU VAT Action plan reforms – what changes will / won’t the UK adopt?
  • EU VAT simplifications - what (if any) will still be available to UK businesses with International supply chains? 
  • Triangulation – presumably no longer available to UK businesses.  Will the ‘EU business intermediary simplification’ (where EU businesses act as intermediaries for a supply delivered to the UK) continue? For Rest of World too?
  • Call off stock
  • Consignment stock
  • Distance sales
  • Indirect exports
  • Installed or assembled goods - EU installers can opt for their UK business customer to account for the VAT (they must write to HMRC) for all UK installations. Non-EU suppliers can opt to do this once with permission from HMRC but after that must register in the UK. What will the position be post-Brexit?
  • Register of temporary movements of goods – may affect process, repair, temporary movements of own goods (eg exhibition stands).
  • Parcels - low value consignment relief – A technological solution would be introduced for overseas businesses to pay the import VAT on parcels valued at less than £135.  Consumers would be responsible for paying VAT and import duty on parcels over £135.
  • Mini One Stop Shop (MOSS) for businesses that sell digital services to EU consumers
    • UK businesses may have to register elsewhere in the EU and use the Non-Union Scheme
    • Non-EU businesses currently registered in the UK for MOSS will have to register elsewhere in the EU
  • TOMS
    • What will the system look like after Brexit?
    • What are non-EU countries currently doing?
  • EU27 may require a UK business to have a fiscal representative (joint & several liability) to deal with VAT compliance.
  • Use and enjoyment – how will digital consumption be taxed?
  • Financial services (specified supplies) – currently VAT recovery is allowed for exporting certain exempt services to Non-EU countries. Will this continue to be available or will changes need to be made? Government technical notices advise this is under consideration.
  • Fulfilment Houses – recently introduced legislation will need to be considered for unintended consequences.

Systems & Processes

  • IT / Finance system changes, VAT engine logic changes, mapping cash flow impacts of any new registrations and supply chains.
  • VAT return data and design – currently data from sales to and from the EU is incorporated into the UK’s 9 box VAT return. How will this change going forward? This will impact on Making Tax Digital VAT reporting.
  • VAT number checking (VIES) - The EU VAT Registration Number Validation service allows businesses to check whether a customer or supplier’s VAT number is valid via the EU Commission’s website. UK businesses will be able to continue to use the EU VAT number validation service to check the validity of EU business VAT registration numbers. It seems unlikely that post Brexit UK VAT registration numbers will be part of this service. HMRC is developing a system so that UK VAT numbers can continue to be validated.
  • There is a presumption that Intrastats and EC sales lists will no longer be required for UK businesses.

VAT legal aspects

  • Uncertainty over what the future trade deal arrangements will look like if one is agreed
  • Ongoing relationship between the UK and EU VAT law
    • VAT action plan
    • Move to a definitive system
  • Status of the Principal VAT Directive and CJEU
    • Post-secession CJEU decisions may be persuasive in the courts in the UK
    • Continuing influence of EU VAT law in courts in the UK?
  • Applicability of general principles of EU law
    • Fiscal neutrality, proportionality, equivalence, etc.
    • Abuse of rights – Halifax
    • Infraction proceedings
  • EU (Withdrawal) Bill:
    • Repeals the European Communities Act 1972
    • Converts EU law into UK law so that the VAT legislation remains as far as possible unchanged on Brexit.
    • Wide powers for Ministers to legislate by Statutory Instrument
  • Taxation (Cross-border Trade) Act 
    • See this CIOT FACTSHEET, it includes VAT law changes that are still relevant background, though points mentioning no-deal are superseded
    • Wide powers to amend UK VAT law by Statutory Instrument
  • Other potential changes
    • Cost sharing groups VAT exemption
    • State Aid
    • Commission and other pan-EU VAT groups
    • VAT registration threshold (adherence to EU rules (and incoming SME reforms of EUR85k threshold)) may impact on what the UK can / will do about its threshold.