The UK Prime Minister Theresa May’s proposed Brexit deal has beenhitting headlines in recent weeks. Whilst the official vote is set for 11th December, several senior members of the Conservative Party have already stepped down in light of the proposal – meaning that getting the deal through parliament might be trickier than May had envisaged. If this proves to be the case, a no-deal Brexit scenario becomes a real possibility.

What is a No-Deal Brexit? 
A ‘no deal’ Brexit means two important things. First, it means the UK and EU part ways without any kind of withdrawal agreement. Second, it means that there is no transition period, necessitating that businesses and consumers would have to make changes immediately to reflect the UK’s new status.

On August 23rd, the government released a batch of preliminary guidance covering VAT in the event of a no-deal Brexit, which we’ll discuss in this blog.

What Will Happen to VAT if There is a No-Deal Brexit?

Regardless of how the UK exits the EU – whether it’s under a ‘hard’ or ‘soft’ Brexit – the UK will be released from the EU VAT regime.  Estimates from HMRC predict that at least 135,000 business that export to the EU will be subject to local import VAT,tariffs, and compliance headaches. The guidance note aims to alleviate some concerns, and proposes measures to relieve the burden on UK trade in the event of a no-deal Brexit. Some of key changes outlined in the VAT guidance note include:

  • One of the most important proposals contained within the guidance note concerns cash payments for import VAT. The government has clarified that importers of goods into the UK from the EU and beyond will not have to pay import VAT. Though this concession has been welcomed by many businesses, it comes at an estimated cost of £8 billion per year.
  • As mentioned above, an estimated 135,000 UK companies that export to the EU will face tariff charges and additional export VAT. The government suggests that any businesses which might be affected should seek specialist tax advice as soon as possible.
  • The guidance was mixed when it came to small e-commerce companies. Due to distance selling regulations, companies will lose the right to sell goods to foreign consumers under their UK VAT registration, and as such will be hit with extra costs and administration due to the need to register and file foreign VAT returns.However, on the flipside, the government intends to eliminate the £15 VAT-free import threshold for packages coming from outside the EU – meaning that UK e-commerce companies will be able to take back a portion of the market dominated by foreign online sellers.
  • Companies providing digital services to EU customers (such as apps or software) will no longer be able to use the UK VAT Mini One Stop Shop (MOSS) service, which allows businesses to report (and pay) VAT on sales via a single return in their home country. Instead, businesses will need to register for a VAT MOSS non-union scheme in an EU country – and this can’t be done until after the UK leaves the EU.
  • UK companies will lose access to the 8th Directive online reclaim service for any EU VAT incurred on a number of business expenses (hotel bills,for instance). Instead, they will have to return to paper-based submissions(the ‘13th Directive’ claims process).

At present,the future is unclear: if a deal is cobbled together, the UK will have a 21-month transition period in which to work through things, giving breathing space to companies facing areas of high risk. However, is no deal is reached, a substantial number of companies will need to respond quickly to major changes in the way cross-border trades are conducted and accounted for.

Whether you have business concerns to do with Brexit or simply wish to ensure your company continues to flourish over the next few years, our tax advisers specialise in helping small companies stay ahead of the curve. Contact us today to learn how we can help your business grow – whatever happens in March 2019.

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