What VAT issues need to be considered?

There are many areas of VAT that could be impacted by Brexit. The continued uncertainty surrounding the UK-EU negotiations means it is not yet possible to establish exactly what the scale of impact may be. If there is a transition period, there may be little initial change.  If there is no-deal there may be swift and wide-reaching change.

We highlight below many of the aspects that need to be considered.  This is not an exhaustive list but work in progress. If you have further aspects to include please contact technical [at] ciot.org.uk.

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) – HMT have confirmed this will be introduced in a no-deal scenario to ease cash flow for EU and rest of world.  What about other ‘deal’ scenarios? How will the mechanism work and how will input tax entitlement be secured? HM Treasury and HMRC have been asked to clarify this (October 2018). 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 – Government technical notices advise this will be abolished in the event of no-deal. 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
    • What will the system look like after Brexit? EU changes are introduced 1 January 2019.
    • Will UK businesses have to register elsewhere in the EU?
    • Will UK businesses have to use the Non-Union Scheme?
    • Will non-EU businesses currently registered in the UK for MOSS 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. This is accessed 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. In a no deal scenario, HMRC advises it 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. There is also the potential to use Intrastats for customs reporting.

VAT legal aspects

  • Continued uncertainty over transition and future arrangements
  • 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
    • At present
    • During any transition process
    • Post-secession
    • Continuing influence of EU VAT law in the UK courts?
  • 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
    • To what extent can the general EU principles be relied on post Brexit?
  • Taxation (Cross-border Trade) Act 
    • See this CIOT FACTSHEET
    • Includes VAT law changes
    • Wide powers to amend UK VAT law by Statutory Instrument
  • Potential changes – rates of VAT
    • Exemptions, zero-rating and reduced rates
    • Flexibility on the VAT liability of certain goods and services?
    • Domestic fuel and power
    • Sanitary products
    • Food
    • Land and buildings
  • Other potential changes
    • Cost sharing groups VAT exemption
    • State Aid
    • Commission and other pan-EU VAT groups
    • Other turnover taxes / sales taxes?
    • 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.