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Brexit: What are the VAT implications?

Ryan Bevan 28 June 2016 No comments


What needs to be done right now?

In short, nothing.

The first thing to note about Brexit is that no action is required by businesses at this point in time from a VAT perspective. This is also the view expressed by HMRC in its Information Paper 42 (2016) published on 24 June in which it confirmed that changes are unlikely for a period of at least 2 years.

The difficulty is that no-one knows what the future VAT and trading arrangements will look like so there is little businesses can do at present to adapt or prepare because there is no model to work to.

There will now be a period of uncertainty while the politicians work through what the UK’s future relationship with the EU will look like. However, prudent businesses should monitor developments on how Brexit will affect the VAT system as things unfold.

The present UK VAT system and legislation is derived from EU VAT law and the UK tribunals and Court system are currently required to comply with decisions of European Court of Justice. Should the UK end up trading with the EU in a manner similar to, say, Switzerland or Norway (or indeed any non-EU country) then there are some obvious changes that will ensue; on the other hand, it is not inconceivable that many of the current arrangements could remain or be adapted. Maybe there is an in-between and the uncertainty surrounding these possibilities make it very difficult to plan at the moment.

What could change? 

Once the UK’s exit has been completed, the UK Government and HMRC would not have to comply with EU requirements and would have the freedom to amend the UK VAT Act and UK VAT policy, including setting its own VAT rates and concluding disputes entirely in the UK courts.

However, compliance requirements for businesses selling out of the UK into the EU and vice-versa will increase as the UK will no longer benefit from intra-EU trading VAT simplifications.

Some of the key VAT changes under this model would include:

  • B2B sales of goods moving between the UK and EU will be treated as exports and imports (rather than intra-community transactions) meaning import VAT will be payable
  • UK businesses selling goods B2C to EU consumers may no longer be subject to EU Distance Selling Thresholds meaning that such sales would be treated as exports in future with no UK VAT being charged, however import VAT due on entry of the goods into the EU would need to be taken into consideration
  • UK businesses selling electronically-supplied services to consumers within the EU will still be liable to account for VAT according to where the customer is located, so no change there. However, UK businesses could adopt the non-EU Mini One Stop Shop (MOSS) VAT Return to account for the EU VAT due on the services instead of the current Union MOSS Return
  • UK companies wanting to recover EU VAT incurred will no longer benefit from the EU online cross-border recovery system and instead will need to use the paper based refund scheme for non-EU companies
  • All businesses will need to modify their billing and accounting systems to ensure transactions with the EU are re-classified correctly and comply with the relevant reporting requirements
  • The end of Intrastat declarations and EC Sales Lists reporting requirements

It is important to recognise that none of the above is guaranteed and we may see retention of some existing arrangements given that the UK is so integrated with the EU system of VAT. Nothing should be ruled in or out at this moment.


There is no need for businesses to take any action at this point in time as EU VAT rules will continue to apply to UK businesses until exit negotiations are concluded. The implications are potentially far reaching and could affect systems, processes, financing, VAT compliance and VAT reporting, including invoicing. These changes will evolve during the estimated 2-year negotiation period and so it will be necessary to develop plans as these things become clearer and businesses should not leave plans until the eve of the implementation.

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