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  • Brexit

    Although the UK formally left the European Union on 31 March 2020, the effective date for leaving for VAT and Duty purposes is 31 December 2020, after which the VAT and Duty rules that apply to trade between the UK and the EU will be subject to significant changes. Although the UK government and the EU are in the process of finalising the rules under which the UK will trade with the EU from 1 January 2021, there is still much to be agreed and some changes will be deferred.

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    Cross Border Supply of Goods

    The most obvious change from 1 January 2021 is that there will no longer be free movement of goods between the UK and EU countries. We have the expertise to advise any businesses buying or selling goods from or to EU countries, including advice on how to comply with new procedures and how to minimise the impact of the changes.

    Cross Border Supply of Services

    Significant changes will also apply to the supply of services, and some of these may result in UK businesses having to register for VAT in one or more EU countries, particularly those providing services to consumers. We can assist service providers to navigate their way through the new rules and manage their VAT position.

    Keeping abreast of VAT changes

    We expect that in addition to the changes to the VAT treatment of cross border supplies, leaving the EU will also give HMRC more freedom to change UK VAT rules. We will be in a position to provide clients with early notification of any proposed changes.

    Understanding VAT & Brexit

    The UK formally left the European Union on 31 March 2020.

    Although there is a transitional period under which existing rules will remain in place, this is due to expire on 31 December 2020, after which there will be significant changes to the VAT and Duty rules that apply to trade between the UK and the EU.

    The UK government are currently in the process of agreeing the rules under which the UK will trade with the EU from 1 January 2021.

    Although we do not yet know what the specific rules will be, and it is likely that some of the new rules will be deferred, it is expected that on 1 January 2021:

    • the supply of goods between the UK and the EU will become subject to Customs Clearance procedures (in the UK and in EU countries)
    • import duties will therefore become payable on many types of goods and import VAT will become payable on VATable goods

    We expect that procedures will be put in place to defer payment of Import Duties and Import VAT and in most cases, Import VAT will be recoverable.

    However, Import Duties are not recoverable from HMRC and will represent an additional cost.

    Compliance burdens are also expected to increase significantly.

    There are also likely to be other significant changes to how VAT applies to cross border trading (both goods and services) as VAT simplifications that business have relied on over the years disappear.

    Sectors that are likely to be significantly affected are:

    • Online retailers and other online suppliers
    • Online service providers (particularly providers of ‘electronic services’)
    • Travel and tourism
    • Transport

    This list is not exhaustive and Brexit will have an impact on most businesses.

    Changes to UK VAT rules

    Another area in which significant changes may arise as the UK severs its fiscal ties with the EU is the UK’s domestic VAT legislation.

    As a member of the EU, the UK’s VAT rules broadly reflected wider EU VAT legislation and the ability to change domestic VAT legislation was limited.

    However, these restrictions will be removed as the UK completes its exit from the EU.

    The scope for changes to the UK VAT legislation is therefore significant.

    We do not expect wholesale changes to the VAT system from 1 January 2021, but it is likely that VAT and other indirect taxes will become much more of a focus for the Treasury, particularly as a means of increasing tax revenues.

    Some of our specialists who can help

    Keith Miller

    Associate VAT Director

    Keith primarily specialises in advising on all aspects of VAT, but can also advise on other indirect taxes. Keith works closely w...

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    Please provide as much detail as possible in regards to the reason for your enquiry so our tax advisers can prepare and tailor their response to reflect your needs. We will endeavour to - respond / call you back - to discuss your enquiry and you will not be charged for this time.

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