VAT after Brexit: What might happen next?

Michael Gove, minister in charge of no-deal Brexit planning told Sky News the government is planning to increase preparation for a no-deal Brexit. He said, “The risk of leaving without a deal has actually increased because we cannot guarantee that the European Council will grant an extension.”

With just a week until the Halloween Brexit deadline, we take a look at some of the potential outcomes for VAT and trading with the EU after 31st October 2019 should the extension be denied, and no deal reached for the UK’s exit from the EU.

VAT and customs rules

HMRC have already published information for UK VAT registered business in the event of a no-deal Brexit. In order to trade with EU member states after Brexit, businesses will have to follow the same rules that apply to trade with non-EU states for VAT and customs.

For goods entering and leaving the UK, customs declarations will be required, with the importer liable to pay import VAT and customs duties.

The EU will apply customs rules, plus duty and VAT at EU rates to goods received from the UK, which will also require customs declarations as it does for any other non-EU state.

Businesses which currently submit claims for EU VAT recovery using the EU VAT Refund online portal will now need to apply directly for their VAT refund from the EU member state. This is the 13th Directive VAT refund scheme, and vendors will have to provide hard copy forms and relevant invoices.

The distance selling rules set by the EU currently require UK businesses to register for VAT in any EU member state which they deliver goods to, if their turnover exceeds the distance selling threshold of that EU country. After a no-deal Brexit, HMRC says that sales by UK operators would be zero-rated as exports from the UK. They then could face a liability for customs duty and VAT at the point of arrival into the EU.

Postponed accounting for Import VAT

In the event of a no-deal Brexit, UK VAT registered businesses importing goods will be able to account for Import VAT due on their tax return. This should in turn ease cash flow fears for UK sellers as they can avoid paying it at the point of arrival in the UK. The postponed accounting rules will apply to imports from both EU and non-EU countries.

Should a business need to make use of postponed accounting for Import VAT, they will need to either sign up for a deferment account or use a customs warehousing arrangement where the customs charges are suspended until the goods are removed for use.

Making Tax Digital for Income Tax

Making Tax Digital for individuals was due to come into effect from 2020, but HMRC have put those plans on hold to focus on Brexit. HMRC sent a letter to tax professionals that said “We have made the decision to delay plans to release project capability to EU exit work. This means halting progress on Simple Assessment and real-time tax code changes.”

Making Tax Digital for VAT

The MTD for VAT scheme launched this year, aiming to eliminate manual errors on VAT Returns and recover some of the £9 billion these issues lose for HMRC. Most UK Businesses with a taxable turnover over £85,000 are now required to keep digital VAT business records and submit their returns using MTD compliant software.

For accountants looking after clients’ VAT Returns, BTCHub is a comprehensive, powerful, and straightforward software allowing MTD compliant returns to be submitted to HMRC. With fantastic features like the new Group VAT functionality, BTCHub is also used by businesses to handle their VAT returns.  

To see the latest HMRC and Government Brexit guidance, please click here.

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