Not that it is expecting a ‘no-deal’ scenario – the UK Government has specifically emphasised that it fully expects the opposite - but, just in case, it has announced a number of measures relating to UK VAT should agreement between the EU and the UK not materialise. The Government considers that it is progressing well in its negotiations with the EU on the terms of Britain’s exit. However, rightly, it recognises that it is always possible that agreement will not be reached. As a consequence, it has made announcements in relation to VAT in the event of a so-called Brexit ‘no-deal’. UK businesses – especially those that trade with businesses in other Member States of the EU have had concerns on a number of fronts, not least how the UK VAT system will work after Brexit and what changes will be needed in relation to import and export procedures. The announcements made by the Government should help businesses to prepare for a ‘no-deal’ Brexit with a little more certainty. In line with the Government, businesses should not assume that an agreement will be reached. Businesses should be prepared for a ‘no-deal’ scenario even though that may not come to fruition.

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Contact
VAT alert
Government publicises VAT changes if there is “no-deal” on
Brexit
August 2018
Summary
Not that it is expecting a ‘no-deal’
scenario – the Government has
specifically emphasised that it fully
expects the opposite - but, just in case, it
has announced a number of measures
relating to UK VAT should agreement
between the EU and the UK not
materialise.
The Government considers that it is
progressing well in its negotiations with
the EU on the terms of Britain’s exit.
However, rightly, it recognises that it is
always possible that agreement will not
be reached. As a consequence, it has
made announcements in relation to VAT
in the event of a so-called Brexit ‘no-
deal’.
UK businesses – especially those that
trade with businesses in other Member
States of the EU have had concerns on a
number of fronts, not least how the UK
VAT system will work after Brexit and
what changes will be needed in relation
to import and export procedures.
The announcements made by the
Government should help businesses to
prepare for a ‘no-deal’ Brexit with a little
more certainty. In line with the
Government, businesses should not
assume that an agreement will be
reached. Businesses should be prepared
for a ‘no-deal’ scenario even though that
may not come to fruition.
Government clarifies certain VAT issues if no-deal on Brexit
The Government has stated that the negotiations between the UK and the European Union are
progressing well and that agreement between the parties on the terms of the UK’s exit from the
EU is likely and expected. However, it is also aware of the possibility that, for whatever reason, an
agreement may not be reached and, rightly, it has considered how the UK VAT system will
operate in a ‘no-deal’ scenario.
Firstly, and perhaps, most importantly, the Government has announced that the UK will retain a
VAT system in the UK after Brexit. From a Treasury perspective, the collection of VAT is vital to
the UK’s funding of public services. Most of the existing UK VAT system will be retained but there
will need to be some important changes for businesses that trade with customers established in
other Member States. In a ‘no-deal’ scenario the current procedures for importing and exporting
goods to and from third countries will apply to trade between the UK and the remaining Member
States. However, and perhaps the most welcome news, the UK will adopt a system known as
‘postponed accounting’ – where VAT due on the importation of goods into the UK is declared and
reclaimed by UK businesses on the same UK VAT return. This system will also apply to imports
from Non-EU countries and will be welcomed by all businesses as it should confer a substantial
cash flow advantage. Business were extremely concerned about the potential economic impact of
being required to pay import VAT and then having to wait three months or more for a refund. This
announcement will be welcomed by all businesses – not just those trading with the EU.
As far as exports from the UK are concerned, in a ‘no-deal’ scenario, the remaining Member
States will treat the arrival of goods in their country as imports from the UK just as they would if
the goods arrived from a non-EU country. UK businesses will, as now, be required to retain
evidence of the goods physical movement from the UK but they will not be required to submit EC
Sales Lists. Affected businesses will need to check the relevant import procedures in each
Member State in which they trade.
As far as services are concerned, the Government has announced that it is likely to retain the
same or very similar rules as those currently in place for determining the ‘place of supply’.
Businesses that use the EU’s Tour Operators Margin Scheme and businesses in the Financial
and Insurance sectors may also be affected by change. The Government has announced that it is
working with travel companies to find a post-Brexit solution and has also hinted that that it may
change the input VAT recovery system for businesses in the finance and insurance sectors.
Further details on these potential changes will be forthcoming in due course.
Comment – the announcement by the Government should help resolve some of the issues
faced by businesses in the eventuality that agreement on the UK’s exit from the EU is not
reached. It is important for all businesses to keep abreast of the possible changes and for
contingency plans to be considered in advance in the event of a ‘no-deal’ Brexit. It does
seem that the Government has listened to businesses over the last 18 months or so –
especially in relation to the potential economic impact of paying VAT on imports. The
postponed accounting system – a system that was in place before the Single Market was
introduced in the early 1990’s will have a significant positive impact on cash-flow if it is to
be re-introduced.
Stuart Brodie
Scotland
T +44 (0)14 1223 0683
E stuart.brodie@uk.gt.com
Karen Robb
London & South East
T +44 (0)20 772 82556
E karen.robb@uk.gt.com
Vinny McCullagh
London & South East
T +44 (0)20 7383 5100
E vinny.mccullagh@uk.gt.com