Brexit and VAT
A lot of the coverage about Brexit has focused on the implications for the movement of people to and from the UK. There has been very little about the implications of Brexit and VAT.
But of course, the concept of the EU “Single Market” allows for the free movement of people, money, goods and services within the member states of the EU, so withdrawing from the EU is much more than a case of passports and visas. For example, another major issue is that of buying and selling goods and the very practical issues of re-introducing customs frontiers for EU goods in the UK. We also have to adjust to selling goods to EU countries as a non-EU business. There are a multitude of different practical issues to be considered and the major task of introducing new procedures and documentation for trade with the EU after Brexit.
Any changes to the VAT rules can have significant effects for both the businesses concerned and the government. I’ve been thinking about a couple of specific issues relating to the trade in services with suppliers and customers in other EU countries.
Surely it’s simply a case of removing the “EU” from UK VAT law?
I recently read a comment saying that surely the VAT rules for services could simply be changed by removing any references to EU business from the UK legislation, so that all transactions with customers and suppliers outside the UK are treated in the same way for VAT purposes.
This sounds logical, but it’s not as simple as that Changes to UK VAT legislation would affect the amount of VAT that the government collects in revenue. For example, under the current rules, businesses providing certain financial and insurance services to any customer in the EU can’t claim VAT on related costs. This means that EU trade is more expensive for those UK businesses because of the additional VAT costs.
If the current arrangements remain in place, then it would be more expensive for those UK businesses to sell to EU customers compared to other financial and insurance businesses based outside the EU, I assume that the government is looking at ways to make it easier for businesses to trade with EU customers, even if that means the financial cost to the revenue of enabling UK suppliers to claim VAT on their costs. And if that’s the case, then the government has to find that revenue from other sources.
So even some that seems to be relatively simple in principle – i.e. removing any reference to the EU from the VAT legislation – will have financial implications for both the UK revenue and the businesses concerned.
And what about MOSS???
The current MOSS arrangement is a “simplification” scheme which allows businesses who sell digital services to non-business customers in different EU countries to register for VAT in a single country of their choice and pay VAT on all of their sales to a single tax authority. Otherwise, the businesses have to register for VAT in every EU country where they have non-business customers.
Under the MOSS arrangement, the tax authorities then pay VAT collected to the tax authority in that country. So if you’re registered for MOSS in the UK and sell services to customers in Italy and Finland, you charge those customers their local rates of VAT and that VAT is sent, by HMRC, to the Italian and Finnish tax authorities.
There is a similar arrangement for non-EU businesses selling services to EU non-business customers.
The MOSS scheme was introduced in 2016?????. It’s a very useful scheme as a lot of digital B2C sales are made by relatively small businesses, who would find it difficult to deal with a number of different tax authorities.
So I wonder how this will work after Brexit? In principle, this would put such businesses in the same category as any non-EU supplier. This means that UK businesses would have to register for VAT in another EU country under the scheme for non-EU businesses and deal directly with the tax authority in that country, instead of HMRC.
And as always, it’s the smaller businesses who will find it difficult to deal with this stuff. It’s one thing dealing with HMRC, but to add the complication of dealing with another EU tax authority will make life a lot more difficult.