Brexit and VAT

Given that the Brexit issue is on everyone’s lips it is worth considering some of the potential implications of leaving the EC from a UK VAT accounting point of view. A common misconception is that leaving the EU would equal leaving VAT behind. This is unlikely to be the case, in fact as VAT is a big earner for EU member states many countries outside the EC such as Australia and now the Gulf states either have, or are in the process of adopting, their own version of VAT to bring in revenue. If the UK leaves the EU it is likely to adopt and retain the majority of the current VAT rules that are currently in place as, although derived from EC law, the VAT Act 1994 is UK legislation.


The biggest change would be that HMRC would no longer be bound by the overriding EC VAT legislation and taxpayers will no longer be able to challenge HMRC’s interpretation of the EC law via the European Court of Justice (”ECJ”). For example, The Bridport and West case for golf clubs was a challenge to the UK’s interpretation of the EC legislation regarding supplies of sporting services by not for profit organisations. HMRC believed that this only applied to supplies to members of the organisation, which was not in fact a rule included within the EC legislation for sporting services provided by charities and similar bodies where it simply refered to a supply to an individual and not to a member. The UK was found to be wrong in how it had adopted and interpreted the EC law leading to a change to UK legislation.


The EC has a number of rules that impact on businesses selling to private individuals, for example, if goods over a certain value are sold to individuals in other member states to of the EC, the supplier becomes liable to register and account for VAT in the other EC country. Once outside of the EC it is likely that distance sales rules will no longer apply to UK businesses, but the end customer will then become liable to pay import VAT and duty on any purchases above the low value import scheme value. 


Some of the administrative burden on suppliers may reduce as obviously, if not in the EC, theoretically there would be no requirement for Intrastat returns and EC Sales Lists as these are statistical returns used to, amongst other things, monitor trade between EC member states. However, given that completing the returns has significantly shifted the administrative burden for accounting for movements of goods to and from the EC, it is likely that a similar form of record keeping will then be imposed by HMRC on the trade.


The other impact would be on import VAT and potentially on levels of duty deferment guarantees that a business will require as this would then be based on duty on all imports of goods into the UK rather than simply on imports of goods from outside the EC.


If the vote is to stay then in theory the VAT legislation in place will remain the same, with the usual referals to the ECJ to clarify HMRC’s interpretation of the law in place.


So, lots to think about for businesses, and I am sure that the list of potential pro’s and cons for exit can go on and on. Of course, who is to say if we will leave or remain in the EC? This is down to the public vote in the referendum, whatever the decision is it is sure to have an impact.   

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