Category: Taxation

How will Brexit impact VAT?

By Richard Staunton

27 Jan 2020

We are now only a few days from technically leaving the EU.

The Gerald Edelman VAT team have been examining what exactly this means for VAT and having received an answer from HMRC on one final point last week can give the following advice.

From 1 February 2020 – 31 December 2020

Summary

There is no change in any part of the VAT system in respect of the EU during this time. This is the key point so you could stop reading now!

Unfortunately HMRC has not communicated this at all. There may about to be an avalanche of business briefs and updates but to date they have been silent.

This means that the following will remain unchanged this year:

  • EU cross border supplies of goods and services 
  • Distance selling rules
  • Intrastat 
  • Tour Operators Margin Scheme 
  • Refunds of VAT incurred in other EU countries
  • Mini One Stop Shop (MOSS) VAT returns
  • CJEU rulings  
  • Specified supplies and place of supply rules

There were a number of business briefs issued by HMRC in September 2019 that have stated that there will be wholesale changes in 2020. These are now redundant. These business briefs were assuming the UK was leaving the EU without a deal, i.e. with no transitional arrangements, and it is very unfortunate that they have not been withdrawn or replaced.

The two areas that have given the team most trouble have been EU refunds and the application of MOSS. Even now there are many websites that are stating that these two points are exceptions and will change early this year. This would mean, for example, that digitally supplied services by a UK business to a private individual in Italy in, say, April 2020 could not be reported by MOSS and the UK business would either have to register for MOSS in another EU country or register for VAT in Italy. We can confirm that this is not the case.

It is therefore business as usual this year for UK VAT within the EU, and supplies made by EU members to the UK. 

From 1 January 2021

The track record of HMRC communicating any changes has not been ideal and the Gerald Edelman VAT team will be monitoring the talks between the UK and EU to determine what effects there will be for next year. Any important changes will be announced at the earliest stage to enable clients to be prepared. 

It is probably too simplistic to assume that the EU will change overnight from being part of the single market to one with the same rules as, say, the USA. While that could be the case, it is probably more likely that there will be further transitional rules for certain areas and there may be agreements that the current treatment will remain indefinitely. We understand at this point that Intrastat may well continue and a free trade agreement may include the ability of UK and EU business to use MOSS across what is now the single market as a facilitation measure. 

As mentioned we will produce further comment on 2021 as and when we receive definitive information.  

If you have any comments or would like to discuss further, please email VAT@geraldedelman.com or your usual contact.

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