Back in 2018, the UK hinted at staying within the European VAT area after Brexit happens. However, nowadays, some would say that the country is rather eager to leave and simply get over it.
Still, we all know that leaving the European VAT area could come with serious implications for the country’s businesses – especially those that are on the rise. On top of that, recent news has probably made a couple of company owners check for updated VAT rates and make sure that their business is still alive. Why?
Because it is very likely that the UK will leave the EU VAT area – either now via a no-deal Brexit, or in December 2020.
Past Ideas
As mentioned above, the Treasury had a plan for the UK to remain part of the EU VAT area after the transitioned period of Brexit. If they had no plan, one of the following two things was bound to happen:
- Leaving the EU VAT area means that the UK would need border infrastructure in order to impose VAT at its borders – as on the Swiss-German border for example.
- On the other hand, if the UK left the EU VAT area and didn’t set up proper infrastructure, the UK would have to accept a loss of control of VAT revenue.
The above fears dragged on for almost a year. However, on 12 December 2019 – after the UK Conservative national election -, it was clear that the UK will try to push ahead with the plans for a withdrawal agreement.
This agreement implies that the UK will leave the EU on the 31st of January 2020.
The Transition Period
It is known that if the UK leaves the EU via a withdrawal agreement, the UK can enjoy up to two years of transition. This means that the current EU laws and regulations – including those related to VAT – will still apply to the UK.
Still, it has been shown that the UK plans to leave the EU VAT regime on 31s January 2020 – it will also leave the Single Market and the Customs Union.
What Happens to VAT after the Transition Period?
Naturally, most people wonder how VAT will be affected once the UK leaves the EU VAT area – especially those that own a business or plan to start one.
This is because, as mentioned before, no one still thinks that the UK has any chances to remain a member of the EU VAT area.
Here are some of the Brexit VAT changes that will be in effect as of 31 January 2020:
- The zero-rated B2B intra-community supplies will no longer be applicable to the UK. All goods movements will become imports or exports – and, therefore, subject to EU or UK import VAT.
- The UK will introduce a postponed accounting import VAT scheme so that business importers won’t have to pay any cash VAT payment to the UK customs.
- Loss of distance selling thresholds.
- Any UK-based business that enjoys foreign VAT registration in the EU will have to appoint a VAT fiscal representative that will hold direct liability for any unpaid VAT.
The Bottom Line
Overall, the UK has one more than a year left to enjoy the European VAT system. After that, it will lose most of its benefits, as it will be considered a third country by the European Union.
In general, being a third country means, when it comes to goods trading, that it no longer enjoys the single market and free movement of goods that the EU comes with. Instead, the UK will have to comply with a set of rules and regulations that any non-EU importer/export currently complies with when trading with the EU.