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As the UK has voted to leave the EU, we outline our initial thoughts on the VAT considerations.

We will, of course, provide updates and more details when the UK triggers Article 50 of the Treaty of Lisbon, which gives it up to two years (unless the UK can extend the transitional period upon approval of the majority of the EU Member States) to exit the EU.

EU VAT legislative framework

  • The EC Principal VAT Directive 2006/112/EC can remain in place until the UK's exit from the EU.
  • Thereafter, the UK will have to enact new UK VAT legislation amending the EU elements that are irrelevant. Here, the UK could simply replicate the existing UK VAT legislation, changing the areas for EU to non-EU status (i.e. dispatches to exports and acquisitions to imports).
  • This means that Intrastat supplementary declarations and EC Sales Lists would no longer need to be completed. However, this would be replaced with the need to complete additional UK import and export declarations.
  • Critically, VAT deferment account guarantees will need to cover the additional amounts as former intra-EU Community acquisition transactions will be reclassified as import transactions.
  • The UK will lose access to the EU 'mini one-stop shop' and similar EU simplifications (for example, EU VAT triangulation simplification) and increase the burden for a business requiring VAT registrations in other EU Member States.
  • The UK may apply to join the European Free Trade Area ('EFTA') to retain access to the Economic Area ('EEA') which includes the other 27 EU Member States, Norway, Iceland and Liechtenstein.
  • Switzerland is not in the EU or EEA, although we understand that its Courts, in practice, have to follow the ECJ decisions to maintain the EU Single Market. The UK may adopt a similar arrangement to Switzerland in that legislation could be passed to require any decisions on VAT, both pre and post Brexit, to be answered consistently with the provisions of EU VAT legislation and ECJ decisions to avoid HMRC imposing its own interpretation of the legislation and for the UK Government to provide an element of consistency and legal certainty in ensuring the UK VAT system post Brexit is used and interpreted fairly.
  • The UK will no longer be involved in working towards supporting the EU's VAT Action Plan (as covered in our April and May 2016 VAT updates).

UK VAT rates and reliefs

  • The minimum standard-rate of VAT, set by the European Commission, of 15% will cease to be relevant post exit, giving the UK Government an opportunity to set a standard-rate lower than 15%, though the existing VAT rate of 20% is currently competitive within Europe.
  • There may be lobbying regarding the extension to the zero-rating and reduced-rating reliefs, together with what supplies are eligible for the VAT exemption.

Business to Consumer ('B2C') supplies

  • Currently, for goods and services, B2C supplies to other EU Member States are generally subject to UK VAT. However, similar B2C supplies to non-EU countries are free of VAT (i.e. zero-rated for goods and outside the scope of UK VAT for services).
  • Consequently, this will see a drop in VAT revenue for HMRC, unless the UK create new VAT rules specifying new VAT treatment for certain transactions to the other remaining 27 EU Member States.
  • The VAT Distance Selling regime would cease to be applicable on the UK, meaning that B2C sales of goods to EU non-business customers could become VAT-free exports.

Special schemes and provisions

  • The VAT Tour Operators Margin Scheme ('TOMS') taxes EU travel, whilst non-EU travel is not. The UK may become a more attractive location for EU travel companies.
  • The VAT use and enjoyment provisions means that the taxation of letting on hire of goods (other than means of transport), telecommunication services, broadcasting services and electronically supplied/digital services will give rise to changes from the current VAT treatment.

EU suppliers

  • Within the EU VAT legislative framework, it allows EU suppliers of financial services and insurance services input tax (VAT) recovery when providing such services to non-EU customers and, consequently, the UK's exit from the EU will see a boost to such EU suppliers' VAT recovery rates when dealing with UK customers.

As you will appreciate, there will be much uncertainty around the VAT implications and variables until the UK formally negotiates to leave the UK and the UK Government publishes its specific guidance on the impact of Brexit for VAT. We will, however, provide updates to you as and when relevant information and proposed VAT changes become available to allow your business or organisation to understand and implement the changes within your VAT accounting and IT systems.

In the meantime, any action to be taken now is limited given that the VAT position is likely to remain the same for at least the next two years. That said, the wider business aspects such as the impact on pricing for future EU orders should be given careful consideration, in particular for contracts exceeding more than 2 years.

Should you require any further information, or clarification, please do not hesitate to contact either Kevin MacGillivray or Gary Moore.

The information within this VAT update is intended to provide only general guidance of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions, nor should it be used in place of specific professional VAT advice. VAT Services (Scotland) Ltd accepts no responsibility for any loss arising from any action taken or not taken by anyone using this update.

Contact us

Should you wish further information on the above, please do not hesitate to contact Gary using the details outlined below.


Gary Moore
Direct line 0141 636 9353
Mobile 07812 061 582
Email This email address is being protected from spambots. You need JavaScript enabled to view it.