Will the UK retain VAT?
Most probably. Even though VAT was introduced as a condition of joining European Economic Community (later EU) it is very unlikely that it would be scrapped. This sales tax brings to the exchequer £120 billion each year. No politician would be brave enough to remove such an amount from their budget or shift it to other taxes.
What might change?
All EU members must comply with VAT rules. There is some flexibility, but it is very limited. Brexit will theoretically remove EU rules, but stability of VAT policy is very important for investors, so huge changes might discourage some companies into investing more. UK post Brexit will have the ability to change VAT rates and/or which transactions are subject to VAT. Businesses that deal on other EU markets will still need to stay compliant with EU rules.
What about sale of goods?
Currently, if a UK business sells goods to Poland (or any other member), there are no border controls or import/export declarations to complete. This requires:
- Sale by the UK business is zero-rated – reporting no VAT on UK VAT return.
- Polish business VAT must be shown on the invoice (and checked on VIES’ website)
- Polish business must declare VAT due on its onw VAT return.
- EC Sales List must be submitted by UK business for all quarters when sales to other EU business happen.
- Depending on total volume of sales, UK business might be required to submit Intrastat declaration reporting the nature and values of such shipments to the EU.
If, after Brexit negotiations, no special rules are negotiated, the sale would look like this:
- The sale would be treated as export and zero-rate would apply (providing that proof of export is held)
- An export declaration would most probably be required by UK authorities. An import declaration would most probably be required and Polish company would probably need to pay import VAT and/or duty.
- With no special arrangements no ECSL or Intrastat would be required.
What about sale of services?
This will most probably be less disruptive as VAT is applied where service is provided. If it is in the UK, then UK VAT will be applied. However, MOSS (Mini-One-Stop Shop) created for service providers to deal easily with their VAT will no longer apply (unless special rules are agreed upon Britain exit from EU).
Can I prepare for Brexit now?
Not really. The main problem is that none of us know what the negotiations will bring. Without knowing what rules will be introduce, there is very little we can do to prepare our businesses.
We intend to publish more information as they come, but if you have a specific problem, please do contact us.
