Brexit Deal or Not a Deal, That Is the Question? (article)

Brexit Deal or Not a Deal, That Is the Question? (article)

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At long last, it appears the U.K. and the European Union have negotiated a provisional deal for the U.K.’s departure or “Brexit” from the EU. Whether the provisional deal is approved by the U.K.’s Prime Minister Theresa May, her cabinet, and the U.K. Parliament remains a separate issue.

In the U.K., the questions posed by Brexit are becoming a concern, and the jury is out as to whether a deal will actually be reached and approved. Some are still hoping there will not actually be a Brexit, but that is perhaps too optimistic. 

We still do not have the details of what will happen. Although the UK tax authorities, Her Majesty’s  Revenue and Customs (HMRC) remains confident there will be a deal, it has also issued information on what will happen if there is no deal. 

Based on the available information, here is a summary of what to expect post-Brexit from a tax perspective:

Fate of VAT

Any hopes that VAT will be abolished are sadly mistaken. The U.K. will continue to have a VAT system.  There are no real surprises here, as at £125 billion the VAT system is the third largest revenue source for the U.K. government behind income tax (£180 billion) and national insurance (£130 billion).

VAT and EU Imports

The current rules that apply to goods arriving in the U.K. from outside the EU will apply for all transactions. That is to say that VAT will be due on goods entering the U.K. In theory, this will be payable at the point of entry and claimed back via a VAT return, but HMRC has advised that it will introduce postponed accounting for VAT on imports to reduce the cash flow burden. There are no details on the mechanism for this, but we would expect it to be similar to the current rules for EU movements of goods, i.e., the VAT will be paid and claimed back on the same VAT return.

LVCR and EU Imports

Currently, for parcels coming in from non-EU countries a Low Value Consignment Relief (LVCR) applies, but HMRC has announced that this will not apply to parcels from the EU, so VAT will be due. HMRC has advised that a technology-based system will be introduced for parcels valued at £135 or below. This will enable the VAT to be collected from the overseas supplier. It is expected that the overseas business will charge VAT at the point of sale and register with an HMRC digital service to pay over the tax. For parcels above £135, VAT will be due on entry to the U.K. 

VAT and EU Exports

Goods leaving the U.K. will be zero-rated, and so no VAT will be payable then, but VAT and/ or Customs Duty may be payable if the goods are destined for an EU country. This may also be payable at the border, creating administration and possibly cash flow costs. 

Impact on Distance Selling Rules

The distance selling rules that apply to goods sold to consumers in other EU countries will no longer apply for U.K.-to-EU sales. These rules currently mean that, where the sales reach a certain level, VAT registration is required in the EU. In a “no deal” scenario, goods would be zero-rated but, as above, VAT and Customs Duty may be payable at the destination.

Business to Business Services

Supplies of services will remain broadly the same for business-to-business (B2B) supplies, i.e., VAT will be due where the recipient is based, according to the “place of supply” rules, and the charge will be subject to the self-accounting mechanism, known as the “reverse charge.” 

B2C Services

For business-to-consumer (B2C) services, the place of supply will very much depend on the service being supplied. There will also be more possibilities than there are with B2B sales. Certain services will be zero-rated as exported services (e.g., accountancy), some services will be subject to UK VAT and, as it is now, some services may be subject to local VAT abroad, with VAT registration possibly being required in other countries.

The Fate of TOMS

HMRC is in discussions regarding the Tour Operators Margin Scheme (TOMS), as this is an EU-only system, and so will, in theory, not apply following exit. This area of the tax will require special consideration.

Digital Services and the MOSS System

U.K. suppliers of digital services to the EU are currently registered for VAT in each EU country (as required) or they use instead the EU Mini One Stop Shop, “MOSS” system. These suppliers will need to leave the EU MOSS system but can use the non-Union scheme. Non-EU suppliers of digital services may continue to use the non-Union scheme.

VAT Refunds

EU VAT refunds will still be obtainable but by using the non-EU 13th Directive process.

Brexit’s Impact on VAT

In essence and from a practical perspective, most businesses will not see significant changes in the VAT that they have to pay. But there will be some changes around some of the documentation and the form filling. The expectation of HMRC is that these should not be too onerous. Nevertheless, whatever the compliance requirements are, it will be important to deal with the detail and ensure that the administration is correctly applied. So often, paperwork incorrectly completed or lacking the right level of detail can lead to significant issues with HMRC and costs, for example obtaining satisfactory evidence of export.

Nothing has been set in stone yet.  This information is being provided to quell the fears of some in the event of a “no deal” situation being reached. We remain optimistic that negotiations within the EU will reach a deal with clear rules set out, in advance of the March 29, 2019 deadline. We will continue to provide Brexit information as it becomes available.


Rupert Moyle is a Partner and Head of VAT and Duty at accountants and business advisers Kreston Reeves, a member of the Kreston International network of firms. He can be reached by email: [email protected] or on the web at www.krestonreeves.com.


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Brexit Deal or Not a Deal, That Is the Question? (article)~/Portals/0/PackFlashItemImages/WebReady/InternationalThumb.jpghttps://www.cbiz.com/Portals/0/liquidImages/WebReady/InternationalThumb.jpgQuestions posed by Brexit are becoming a concern, and the jury is out as to whether a deal will actually be reached and approved....2018-11-26T16:14:41-05:00

Questions posed by Brexit are becoming a concern, and the jury is out as to whether a deal will actually be reached and approved.