Government Guidance on VAT and Brexit

What are the implications of VAT for businesses if there’s no Brexit deal? That’s precisely what the recent guidance published by the government sets out to explain.

A situation where the UK leaves the European Union in a no-deal scenario is thought to be unlikely, given the mutual commitments of the UK and the EU in reaching a negotiated outcome. The government believes that negotiations are going well and that a positive deal should be on the cards. However, they do say that they have a duty, as a responsible government, to ‘prepare for all eventualities’, and that includes a no-deal scenario.

The government has been putting a programme of work in place over the past two years to make sure that the UK is primed and ready in all scenarios. So, as March 2019 approaches, it has found itself in a situation where preparations need to be accelerated. They have, therefore, put together a series of technical notices, with a view to helping individuals and businesses understand what would happen in a no-deal scenario, so that informed preparations can be made.

You will probably have received a notice from HMRC recently. This notice carried the aim of informing UK businesses of the implications for VAT rules for goods and services traded between the UK and EU member states should the situation arise that the UK exits the EU with no agreement.

The government is confident that a good deal will be reached that works for both sides, but as we said, all scenarios are being prepared for. In other words, it is contingency planning. The government is keen for businesses to be fully aware of how a no-deal scenario would affect them, and wants them to start taking steps to mitigate any risk, even if it is unlikely. They have issued a technical notice including early planning support on VAT to help businesses understand the potential impacts. They say that further details, including specific actions that businesses should take, will be provided in due course.

The government says that for most UK businesses, there will be no change to VAT rules. But for those that are affected, there are numerous technical notices designed to help, such as the Trading with the EU if there’s no Brexit deal notice, covering customs, excise and import processes at the border.

The UK will continue to have a VAT system after it exits the EU. The revenue that comes from VAT is crucial for funding public services. The VAT rules around UK domestic transactions will continue to apply to businesses in the same way as they do now.

If the UK exits the EU on 29 March 2019 without a deal, the government will aim to maintain VAT procedures as close as possible to how they currently run for continuity purposes. However, if there is no deal, then changes will be made to the VAT rules and procedures relating to transactions between the UK and EU member states. The government has taken decisions and actions where necessary in order to mitigate the impacts of these changes for businesses. The main changes that will take place are summarised here.

No changes will be made before March 2019; however it is important for businesses that are importing goods from the EU, exporting goods to the EU, supplying services to the EU and interacting with EU VAT IT systems such as the VAT Mini One Stop Shop (MOSS) to start to prepare now.

If you are uncertain as to where to look for advice, talk to your local bookkeepers in the first instance. They will point you in the right direction. Don’t delay in starting to prepare, because March 2019 is not far away.

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