The last few weeks in UK politics have been eventful, what with Theresa May’s resignation after repeated failures to pass her Withdrawal bill and the subsequent European elections, featuring most prominently the successful campaign of the newly formed Brexit Party. Whilst numerous individuals are busy launching their campaigns to be the new leader of the Conservative party (as well as Prime Minister) and the Labour party continues to debate their policy regarding a second referendum, it is easy to forget that the UK is leaving the European Union on October 31st. The likelihood of a ‘no-deal’ Brexit remains a distinct possibility until a deal is approved by both the EU and Parliament, so it is important for businesses to be considering the implications that this could have on the UK VAT system.
If the UK leaves the EU without a deal, the trade UK businesses carry out with the EU will broadly follow the customs control that apply to trade with the rest of the world (outside the EU). Customs declarations will be required when goods enter or leave the UK and importers will be liable to pay import VAT and/or customs duties. Similarly, the EU will apply customs rules (and duty and VAT at EU rates) to goods it receives from the UK, requiring customs declarations on goods imported from the UK just as for goods imported from other non-EU territories. HMRC have been issuing guidance and instructing UK businesses to act now to ensure that they are prepared for a no deal exit.
If your business only trades with the EU then the first thing to do is to register for a UK Economic Operator Identification (EORI) number because without this you will no longer be able to import or export goods with the EU if the UK leaves without a deal. If your business trades with both the EU and the rest of the world you should make sure that your business is able to comply with the systems, processes and controls that will apply for EU trade. Finally, if your business only trades with the rest of the world then the customs processes for your trade outside of the EU will not be affected. However, you may find that you will need to adapt to certain systems or processes that have changed as a result of the UK leaving the EU.
HMRC have highlighted the effect of a no-deal Brexit on several key VAT issues that are particularly important for businesses trading cross border with EU member states. These include postponed accounting to avoid the cash flow burden of paying import VAT on goods at the time of arrival from the EU. There will also be major changes for businesses making distance sales of goods, using the Tour Operators Margin Scheme, the Mini One Stop Shop for B2C supplies of digital services, or submitting refund claims for VAT incurred in EU member states.
Ultimately until a final agreement is reached regarding when and how Brexit will be implemented, the VAT implications will be subject to change. In the meantime, businesses should continue to prepare for a no-deal Brexit and watch this space for further developments. Please contact us at FKGB Accounting if you would like any more information regarding any of the topics mentioned above and for assistance with UK VAT registration, filings and general compliance.
