It’s official. Come the end of January the UK will officially leave the European Union and UK businesses will have many aspects around VAT compliance to consider.
Prime Minister Boris Johnson has the power he needs to push his Brexit agenda through parliament after a landslide win early Friday morning when the Tories won 363 seats needed to claim a majority. The Labour party was far behind at 203 seats. The BBC has projected the Conservatives will ultimately claim an 80-seat majority as the party picked up a slew of seats in traditional Labour strongholds in Wales and northern England.
The result tees up a new, substantial Conservative majority government, which will put securing Johnson’s withdrawal agreement at the top of its agenda and enable the U.K. to leave the European Union by the end of January.
Impact of Brexit on UK Businesses
We still await clarity from tax authorities on policy and procedure changes within VAT compliance however there is clear guidance for businesses based on the assumption that the UK will be treated exactly the same as other non-EU countries.
How Brexit Affects Import VAT
Any goods coming into the UK (from the EU or otherwise) will be treated as imports and subject to VAT. (However, the UK will almost certainly introduce an import VAT deferment scheme similar to those that exist in the Netherlands and Belgium so that importers don’t have to bear the brunt of the cash flow impact).
All goods going from the UK into the EU will have VAT on them in the destination country. This creates a cash-flow impact which did not exist when the UK was part of the single market.
For example, if the UK company is the exporter only, they will not have to worry (since the EU importer will have to pay VAT on their side). However, if the UK company is also importing the goods into the EU country, then the UK company will have a foreign import VAT cost to consider. (Similar to above, it is likely that EU countries who have a high volume of imports from the UK will therefore start implementing import VAT deferment schemes – but this is a logical presumption, not an official opinion).
Fiscal Representation will be needed in Europe
UK entities who are registered for VAT in the EU might need to appoint a fiscal representative (Belgium and Greece have issued statements explicitly confirming this and it is likely that others will follow). This means if you have an existing VAT number it might need to be “upgraded” to fiscal representation to ensure compliance.
Considerations of New Supply Chain Models
Given that these changes may leave your business exposed to VAT leakage and non-compliance within your import/export operations and company structure, it is probable that your business may need to use a different supply chain model (perhaps delivering orders from a different country to avoid these complications). Changes to the supply chain will inevitably result in new VAT compliance obligations.
UK No Longer Part of EU Refund Directive (8th)
UK businesses will no longer be able to claim their European VAT through the EU Refund Directive because the UK will now be considered a non-EU country and therefore all claims from the UK will have to be made via the 13th Directive. This means a change in procedure for many businesses who are used to an easy data-driven portal refund submission as it’s likely original invoices and extra supporting documentation will be needed.
What Can We do To Help
Vatglobal is happy to assist with Brexit guidance based on your specific supply chain and transactions (between the EU and UK). We regularly provide technical and practical advice that should be considered so that your business is not caught out when Brexit finally happens in a few weeks.
The countdown starts now. While there will be a transition period in 2020, It’s time your business takes action on its VAT compliance.