“Brexit” – an end in sight to VAT in the UK?
VAT was introduced in the UK in 1973 as part of our obligation on joining the Common Market (the predecessor to the European Union). So following the UK’s vote to leave the EU does this mean that an end is in sight to a VAT system of taxation in the UK?
It is important to note that VAT is a form of taxation which is applied by many countries throughout the world and is not restricted solely to Member States within the EU. It is seen by many commentators as a relatively efficient form of taxation, and in the UK it currently contributes 22% (or £115 billion) of all tax revenue collected by HM Revenue & Customs. In our opinion the answer to the headline question is “Not a chance!”.
So if the UK does leave the EU what changes to VAT and other indirect taxation can be expected?
Firstly, we consider there will be very little change to the operation of VAT in the UK. The UK already has its own VAT legislation in force, which very much mirrors the (current) superior EU VAT legislation but which is also consistent with the majority of VAT systems followed throughout the world. As such there would be no overwhelming need to change the basis of operation of VAT in the UK but importantly the UK would have flexibility on setting its own rates of VAT, for example by extending the scope of the items falling within the 0% rate, and this is something which we expect to see although not to any great extent.
Leaving the EU will introduce additional paperwork obligations to imports/exports of goods from/to the EU but this should not prove onerous from a VAT perspective and simply take UK businesses back to how they dealt with trade with EU Member States prior to the introduction of the Single Market in 1993. Several EU VAT reporting forms will need to be replaced by Customs declarations but overall this should not prove to be overly onerous and are we really going to be sad about not having to file the wonderful monthly Intrastat Declarations?
Of more concern, however, is the possibility of prohibitive Customs tariffs being applied to goods being exported from the UK to the rest of EU and this is a debate which no doubt will continue to be commented on by the national press as the process of Brexit evolves. Clearly there is a risk of “tit for tat” arguments between the UK and the EU where each Member State will no doubt have its own view. Being a member of the EU did offer the clear benefit of trade between the respective Member States being free from Customs duties (with the associated paperwork) but this freedom also applied to trade with certain countries not part of the EU, namely Iceland (conquerors of the England football team), Lichtenstein, Norway and Switzerland and it has to be hoped that the politicians representing the UK during its discussions with the EU manage to achieve something similar. Only time will tell.
If you need any guidance on what Brexit might mean for the indirect tax matters of your business, or simply want to put yourself in the best position for obtaining various reliefs/simplifications in a post-Brexit world, please contact our resident indirect tax experts Mark Hetherington (firstname.lastname@example.org) or Ian Coulthard (email@example.com).
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