What does a no deal Brexit mean for VAT?

2nd November 2018

Back in the summer when the deadline for a Brexit deal still felt reasonably far away, HMRC published guidance for businesses on what would happen to VAT in the “unlikely” scenario that we leave the EU without a deal. Two months later and that deadline is much closer and a deal has not yet been agreed.

Whether or not a deal can be secured, VAT will continue to be applied to sales of goods and services that take place in the UK. To minimise disruption for businesses, HMRC is aiming to keep VAT procedures in a ‘no deal’ Brexit as close as possible to what happens now. However, there are some important areas that will change and businesses need to be prepared to adapt accounting systems and trading routes accordingly. We’ve outlined below some of the key points from HMRC’s ‘no deal’ VAT advice.

Importing goods from the EU:

From 29 March 2019, goods imported from the EU will be subject to the same rules for imports from non-EU countries, with some additional charges in certain cases.

To help reduce the immediate impact on businesses, UK VAT registered businesses will be able to account for import VAT on their VAT return rather than paying the VAT on or soon after goods arrive at the UK border. This will apply both to goods from EU and non-EU countries. Customs declarations and payment of other duties will still be required. HMRC has promised to issue further guidance on required record-keeping – and it’s worth bearing in mind this will all come into force at the same time VAT-registered businesses will need to begin complying with ‘Making Tax Digital’.

Exporting goods to EU Businesses

UK business will, subject to normal evidential requirements, be able to zero rate exports of goods to business located in the EU.  However, additional controls on the movement of goods into the EU (including Customs and Duty Tariffs) may apply and this should be considered as soon as possible both in terms of physical impacts and well as financial implications for existing contracts.

Exporting goods to the EU Consumers

The current Distance Selling threshold which applies to sales of goods to consumers located elsewhere in Europe will no longer apply and consequently sales of goods will be zero rated again subject to evidential requirements regarding proof of export. 

If seeking to sell goods stored in EU countries for sale within the EU, UK companies will have to register for VAT in the relevant country with the EU to ensure it can account for VAT on sales taking place in that EU country.

Supplying services to EU Businesses and Consumers:

For companies selling services, the ‘place of supply’ rules will continue to apply in a similar way as now. Where place of supply relates to customer location (as in digital services) VAT will be due in the relevant EU state.

These are just some of the points covered by HMRC’s guidance – the full report can be read here: https://www.gov.uk/government/publications/vat-for-businesses-if-theres-no-brexit-deal/vat-for-businesses-if-theres-no-brexit-deal

It’s important to remember that despite the constant talk of ‘no deal’, efforts are still being made to reach an agreement which may change some or all of the above. Furthermore, VAT is only one aspect – businesses should already be preparing for the wider implications of Brexit, including impact on recruitment and retention through to current business models and contracts, and plan accordingly.

The short timescales mean VAT-registered businesses should prepare for the most likely scenarios and will need to act quickly once the nature of our exit from the EU is known. HB&O is keeping a close eye on developments but if you have any specific queries in the meantime, please get in touch.