What about VAT after Brexit?


Although the UK parliament ruled against the possibility of a ‘no deal’ Brexit, the outcome of the current UK political controversy remains uncertain. Both businesses and governments in both Great Britain and EU are preparing for every eventuality, including the worst-case scenario of a 'Hard Brexit'.

In case of a so-called Hard Brexit, the UK will no longer be part of the EU's harmonised VAT system as of 30 March 2019, which will have a profound impact on the supply of goods and services to and from the UK. After Brexit, the UK will become a third-party country. What does this mean?

UK as a third-party country

An important implication of Brexit – for economic transactions in general – is that the UK’s third-party country status will change the tax regime for the supply of goods between the UK and EU member states. With a Hard Brexit, these supplies will become export-import transactions both for business-to-business (B2B) and business-to-consumer (B2C) sales, and the advantages of the intra-EU cross-border VAT regime and its impact on B2C transactions will be lost as of 30 March 2019. If there is a deal, the UK should only leave the harmonised VAT system as of December 2020.

Impact – supplies of goods and services

Since supplies of goods to or from the UK will qualify as imports or exports, VAT must be paid for introducing a product into the territory of an EU member state (i.e. as an import into the EU), and no VAT will be due for supplies of goods to the UK (i.e. an export from the EU). On the other hand, customs formalities will replace the declaration requirements applicable to deliveries made between two EU member states. Both systems involve an administrative burden, but of a different kind. Business that are not familiar with import and export formalities should seek assistance on the matter.

In relation to supplies of services, fewer changes are likely to affect VAT taxation rules since the taxation of services – with only a few exceptions – is determined by the country of both the provider and consumer. In other words, the rules  are the same whether both parties are established in a EU or non-EU country. One exception to this principle concerns B2C intangible services, which are taxable in the country where the service provider is established when the client is a EU resident, but are not subject to EU VAT if the client resides outside of the EU.

British businesses supplying goods or services to Belgium, for example, which will qualify as imports for Belgian VAT purposes, will in certain cases be required to appoint a VAT representative.

Also, after Brexit, British businesses can no longer apply for reimbursement of VAT paid in EU member states through the electronic VATREFUND procedure set out by Directive 2008/8/EC, but will be required to make an application through the more traditional framework of the 13th Directive (potentially with longer delays).

For EU businesses with outstanding deduction rights of British VAT, the reimbursement through VATREFUND will – in case of a Hard Brexit – only be possible until 29 March at the latest. Any British VAT reimbursement request filed after that date will be governed exclusively by British national law.

Recommended Next Steps

All businesses supplying goods to or receiving them from the UK should anticipate a Hard Brexit, and carefully review their invoicing and VAT-customs declaration chain, and make appropriate changes. Failing to comply with VAT or customs formalities may lead to severe sanctions including criminal penalties.

UK businesses with outstanding EU VAT deduction rights (as well as EU businesses with outstanding UK VAT deduction rights) should make sure to file their VAT reimbursement requests by 29 March 2019 at the latest.

The days and weeks after Brexit are expected to be both confusing and chaotic. If you have any questions on how to proceed and what changes to implement in company procedures, do not hesitate to contact one of our CMS local experts for help and advice.