Brexit VAT implications: How Should my Business Handle VAT after Brexit?
Maria Peloponisiou~ 4 min Reading time | 24. Sep 2019
Businesses will undoubtedly have to prepare themselves for Brexit, but how will they have to handle VAT once the UK leaves the EU? This article will help you understand what changes will be made. It will also help you understand what changes will be made in the event of a withdrawal agreement or a no-deal Brexit.
The UK Government’s withdrawal agreements have been repeatedly rejected by Parliament. However, it is very likely that the Government will try to come up with another agreement that will be agreed upon. If the UK is to leave the EU by 31 October 2019, there will be changes made to how businesses deal with VAT and duty and procedures that relate to imports and exports from and to EU countries.
Please note that we cannot guarantee what the VAT implications will definitely be. We can only speculate as to what might happen.
It’s clear that a no-deal Brexit is not something that the UK Government and the EU are hoping for. However, this is an outcome that a lot of businesses are preparing for. The UK and EU have published a lot of information about existing laws, governing bodies and procedures that will be affected by a no-deal Brexit. In the meantime, however, some retailers have begun to stockpile goods in their warehouses. This is to ensure that they have a supply should there be a delay at ports. These delays are likely to be caused by changes in VAT and customs administration. Some manufacturers are trying to determine how they will be impacted if there is a no-deal Brexit. This is particularly crucial to manufacturers who work with the just-in-time concept.
VAT After Brexit
If there is a no-deal Brexit then the UK has plans to bring in postponed VAT accounting. If this takes place, every business that imports products into the UK or exports them will be affected. In other words, there is more to it than the UK-EU trade. Any business that imports or exports goods will be affected.
Making Tax Digital and VAT after Brexit
When HMRC brings Making Tax Digital (MTD) into effect, it may well mean that all UK businesses will need to update their software. This means that generating their VAT will change. This could well mean that there will be even more work to do once the UK leaves the EU.
The Withdrawal Agreement’s Reference to VAT
Unsettlingly, the withdrawal agreement does not mention VAT very often. In fact, it’s mentioned less than forty times. The agreement is 854 pages long, but VAT is only mentioned a few times. This either means that an agreement surrounding VAT has been made or there’s much work to be done.
The most important reference regarding VAT is mentioned in relation to goods that are making their way across borders. More specifically, this reference is in relation to when the withdrawal period comes to an end. At this point, the rules that apply at the time will continue to apply for another 5 years for that particular transaction.
How Will VAT be Affected?
It is hard to say how VAT will be affected. Some say there is already an agreement about VAT whereas others say there isn’t one as yet. However, many businesses will estimate what is going to happen to VAT and how they should handle it. There is some good news, however. The domestic VAT is not likely to change. It’s looking like VAT will need to be filed in exactly the same way. VAT rates are also very unlikely to change at all.
When it comes to sending goods or importing them from EU countries there might be some changes.
If there is a deal
If there is a deal, VAT-registered businesses will need to make a payment and account for VAT when their goods clear through customs. You may, therefore, need more working capital.
If there is a no-deal
Any VAT-registered business that purchase goods from suppliers in the UK might need to pay the VAT before the goods clear through customs. They may, therefore, need more working capital. UK businesses that are based in the UK and import goods from the EU and other countries will need to use postponed accounting. This is to ensure that there is no cash-flow impact. What this means is that VAT-registered businesses can account for import VAT on their return. This is instead of paying for the goods when they arrive in the UK.
Other Aspects to Consider
If you supply digital service, the supply location will be where the customer lives. If you supply financial and insurance services input VAT detection rules could change. Businesses will likely find that handling VAT after Brexit is a little more complicated than they hoped for. However, after a while, the changes will become a routine part of their administration.