John Davison, writer, lecturer and accountant, answers your questions following the UK decision to leave the EU.
VAT in the UK
Will VAT rates change?
VAT rates will entirely be in the hands of the UK Government following Brexit. The UK Government can raise or lower rates as it sees fit. For example, if the UK Government decides to reduce the rate of VAT on domestic fuel and power from 5% to 0%, it could do. Currently, the UK is constrained by the EU regarding rates. Only certain items can be charged at the reduced rate and there is a minimum rate applicable for the standard rate. Also, most items that are currently zero-rated cannot be returned to the zero-rate once the UK decides to tax them. Following Brexit, the UK has complete flexibility concerning rates.
Will the UK registration threshold change?
The UK currently has the highest VAT registration threshold in the EU. It is prevented by the EU from raising the threshold significantly. When the UK leaves the EU there will be no constraint on this or other thresholds.
Will the schemes for retailers or small businesses change?
Again, there is no reason for these to change on Brexit. The EU monitors the reliefs for small businesses, but when the UK leaves the EU it will be allowed to introduce or modify all the schemes as it wishes.
Imports and exports
What will be the significant changes caused by the UK leaving the EU?
Imports and exports refer only to supplies of goods outside of the UK, and currently, outside of the EU. The major change is that goods moved to and from the EU will be treated as imports and exports. Thus, all the duty and VAT rules that apply to imports (or exports) will apply to goods moving in and out of the EU — see below for supplies of services.
Will duty rates change?
Currently, the EU sets duty rates charged on imports. When the UK leaves the EU, it can set its own duty rates. Duty rates may not move markedly in the short term. If rates are increased, it is possible that other countries will increase the duties charged to the UK.
Will duty rates charged by other countries on UK exports change?
Again, these may not change significantly in the short term. Rates will be subject to trade negotiations. As the EU has had responsibility for trade negotiations the UK has few, if any, trade negotiations. This may make it difficult for the UK in the early years to come to trade agreements (particularly free-trade agreements) with other countries.
Will valuation rules, duty reliefs and suspension regimes change?
It is not expected that there will be significant changes to these. Some rules, such as valuation rules, are determined by the World Trade Organization and are independent of the EU.
Will the import document C88 still be used for imports?
The C88, Single Administrative Document, is an EU document that is used for imports into all EU countries. A replacement form will be necessary, although there is no reason why this should not be very similar if not identical to the current import document. It is not expected that import procedures will change significantly, but some may be necessary.
EU supplies of goods
What duty rate will apply to supplies of goods to and from the EU?
Currently, no duty is charged on the supply of goods to or from the EU. It is not known what duties, if any, will be applied. This will be one of the major areas of negotiation between the EU and the UK. Options include, no duties being applied, using the current duty rates that the EU applies to third party countries, or some other variation. Undoubtedly, many will be hoping for no duty to be applied, but others may want duties to be applied to protect UK industries (or in the EU to protect EU industries).
Will it be necessary to complete Intrastats forms after Brexit?
Intrastats are used to gather information about the transfer of goods between the EU Member States. As the UK will no longer be in the EU, there will no longer be any need for Intrastats. The information that was gathered by these forms will be collected using the replacement import and export documents (the forms that will replace the C88 forms used for imports and exports currently).
Will the triangulation facility for supplies to third-party customers still be available?
Triangulation is an administrative easement to allow the single market to operate where goods are supplied to one customer in another Member State, but are immediately supplied to another customer in another Member State. Without this easement it would be required to register for VAT in the Member State of the first customer. Triangulation is not available to businesses that are not established in the EU. It is assumed that following exit from the EU, the UK supplier will be required to register in each country where supplies are made. This could cause a significant increase in administrative burdens. It will not impact businesses that sell goods into the EU and the customer takes possession of the goods. It will only be an issue where goods are sold on to another customer, or goods are diverted from a previous sale to a second customer.
Cross-border supplies of services
How will VAT be accounted for on services supplied into the EU?
The UK will be treated as making supplies by an external third party rather than as a business established in a Member State of the EU. The “place of supply rules” will alter. This is a tremendously complicated issue and anybody that is making supplies of services into the EU is advised to obtain specific tax advice on this topic.
Some services are regarded, by the EU, as being supplied where physically performed. For example, any services that relate to land are regarded as being supplied where the land is. This includes construction services and real estate agency services. Other services are treated as being supplied where the customer belongs, and somewhere the supplier belongs. It can also make a difference depending on whether the customer is a business (B2B) or not in business (private consumers — B2C).
Overseas suppliers (those not in the EU) of e-services and electronic services are required to account for VAT on supplies made to consumers using an electronic form. VAT needs to be accounted for on where the supplies are made. Suppliers of other services may be required to register for VAT in the EU Member State where the supplies are made. Where services are supplied to businesses into the EU, the VAT can usually be accounted for by the customer by using a reverse charge; this relieves the supplier from accounting for VAT in the Member State where the supply is made.