The public Brexit debate has, mostly, lacked detail. So, thanks has to go to Jeremy Cope & Max Schofield for this analysis of ‘VAT and Brexit.’ It addresses cross-border supplies, as you would expect, and also possible future divergence from EU VAT regulations.
In response to the ‘abolish VAT’ argument, the authors comment that, with VAT netting 21% of all taxation revenue, this is not a great idea! (Para 4)
It has been a valid part of the Brexit debate that the UK will become free to set its own VAT rates, especially to reduce it. Whilst there is some merit in doing this, it appears not to be so straightforward as some would have us believe:
The contention that reduced rates lower regressivity (the ‘vertical equity’ argument), encourage consumption of merit goods (the ‘positive externalities’ argument) and increase employment (the ‘labour intensive industries’ argument) has been shown to be false. All justifications assume reductions are passed on in the consumer price; this is rarely the case. Many are based on arbitrary categorization with blurred lines, often functioning contrary to traditional inverse elasticity. (Para 16)
Towards the end of the article, one section highlights a number of ECJ decisions which consider issues which may be re-visited post-Brexit. These include the reduced rate for energy saving materials, zero-rated construction, e-books, simple/compound interest, MOSS (para 17). No doubt HMRC will have these in its sights.
About Les Howard
Hi, I am a VAT Consultant, working mainly with charities. I am based in Cambridgeshire
I have over 20 years experience in VAT, and am currently also a part-time member of the Tax Tribunals.