European VAT

UK to stay in European VAT area post Brexit

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The UK will remain in the EU VAT regime until the end of the 19-month Brexit transition period, as confirmed by The European Commission and UK Brexit negotiators. Brexit is currently scheduled for 29 March 2019, however, the UK will not exit the EU VAT system until 31 December 2020. During this time, the UK will have to accept rule changes and will still be subject to rulings of the European Court of Justice. The late December 2020 date was set by the EU, in order to coincide with the ending of its 5-year budgetary cycle.

The details were provided on 19 June 2018 as part of an update of negotiations under Article 50 TEU, on the UK’s withdrawal from the EU.

Cooperation of UK HMRC and EU Tax Authorities

Other areas of cooperation between the UK’s HMRC and EU tax authorities will also be extended:

  • Cooperation on tax fraud will continue until December 2024
  • The collection and application of duties for goods moved prior to December 2020
  • Until December 2025 there will be mutual assistance on the collection of taxes due prior to December 2020
  • Access to UK VAT registration status on VIES until December 2024.

Once the UK leaves the EU VAT regime at the end of 2020, it is estimated that 132,000 UK and many more EU companies that trade with the UK, will lose many VAT reporting simplifications. These companies may also face import VAT bills for the first time on goods sold cross-border.

Implications for UK Businesses

  • Importers face a UK 20% VAT bill and cash flow recovery admin on all their goods entering the UK
  • 27,000 small businesses could face potential £720m VAT compliance costs, to continue to sell online after the loss of the EU distance selling threshold relief
  • Unrecoverable custom tariffs of 4% on average for importers of goods into the UK from the EU
  • UK sellers of digital services (streaming media, apps and ebooks) lose their right to the EU MOSS single VAT registration and filing facility
  • UK exporters of goods to the EU will have to appoint special tax representatives for tax reporting in 19 of the 27 EU states.

What does leaving the EU VAT regime mean for international traders?

Once out of the EU, the UK will become a ‘third country’ for VAT trading purposes. This will have a huge impact on importers and exporters, including a number of significant implications.

Firstly, there will be an obligation for small e-commerce companies to register VAT immediately in any EU country where they are selling, due to the loss of the EU distance selling threshold simplification.

Secondly, a 20% UK import VAT bill will be introduced on all goods coming in from the EU. However, this will be recoverable.

Finally, an average of 4% non-recoverable tariff costs will be introduced on all imports. UK companies that export to the EU, of which there are approximately 132,000, will face the same profit-margin hit.

The commerce industry is becoming increasingly vocal (through the CBI and Chambers of Commerce) about the need to end the uncertainty of Brexit becoming the next financial crisis since 2008.

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