It has been over two years since the Brexit vote, but a deal is yet to be agreed with Brussels. The UK government and EU negotiators have jointly confirmed that the existing VAT rules and certain Customs procedures will continue to apply after the UK leaves the EU on 29 March 2019 until 31 December 2020. After this date however, there is still no clarity on how supplies to and from the EU will be treated.
If the UK were to leave the EU VAT area (which will be the case by law if no deal is reached), it would be treated by the EU as a "third country" and vice versa. This means:
- Goods imported into the UK from the EU will be subject to UK import VAT, unless a relief applies. To ease the cash flow issue this would cause, the UK government has announced that it will introduce a postponed import VAT accounting system.
- Goods exported from the UK to the EU by VAT registered sellers will still be zero-rated, provided certain evidence of export is kept. Import VAT may however be levied in the recipient EU member state at the point of entry. Whilst refunds may be possible, repayment may take some time.
- For many UK/EU services, the net VAT position should be broadly unchanged, as the reverse charge procedure should apply regardless of whether the recipient is EU or non-EU. For certain types of services however, the administrative requirements could be drastically different.
The government has so far proposed several options for a future VAT and Customs position:
- The "maximum facilitation" option: whereby the UK would trade with the EU as a third party whilst retaining duty-free and administration-free access to the European Single Market.
- A new UK/EU customs partnership, under which the UK would align its approach with the EU in such a way that no UK-EU border would be necessary.
- Following negotiations at Chequers in July, the cabinet's most recent iteration proposed a post-Brexit free trade area for goods subject to a common UK/EU rule book, whilst allowing the UK to negotiate independent treaties with the rest of the world. This was publically rejected on 20 September.
Despite several resignations and regular political disruption, the government states that it still expects to negotiate a successful deal with the EU, though pressure has now been placed on the EU to move negotiations forward.
Although the Prime Minister has publically denigrated the idea of remaining in the European Economic Area and Customs Union, the UK might yet seek to enter into EU participation arrangements similar to those of Norway, Iceland and Liechtenstein.