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The taxing truth about Brexit

 Now what?

Prime Minister David Cameron’s great gamble has backfired. The referendum that didn’t need to happen happened, and Brits voted to leave the EU. So now what?

Although the referendum isn’t legally binding, it would be “political suicide” for the government to ignore it. And although more than 3 million Brits have signed a petition calling for a second referendum, Mr. Cameron has said a second referendum is “not remotely on the cards.” His government is moving forward on the Brexit that approximately 17 million British citizens have said they wanted.

Everyone wants to know what the future will hold, especially the businesses small and large that are based in Britain or have clients and customers there.

In the short term, there will be no change. Prime Minister Cameron has not yet activated Article 50 of the Lisbon Treaty — the procedure for actually leaving the EU — maintaining that is “a task for the next Prime Minister” (Mr. Cameron has promised to step down in October).  Until Article 50 is triggered, the status quo remains in effect.

What follows the activation of Article 50 will be reminiscent of a divorce: a long negotiation period during which the U.K. and the remaining E.U. member states decide upon and agree to separation terms. Like any divorce, it could go smoothly or turn nasty, and it will likely take the full 2 years permitted under Article 50.

No matter how the separation goes, the end result will most surely impact VAT compliance for companies selling from and into the UK.

Post-Brexit VAT compliance

Questions about how VAT compliance will work in a post-Brexit world include:

  • How will VAT apply to transactions occurring between UK companies and companies and individuals in the rest of the EU?
  • When and how will UK’s VAT Act replace the EU VAT Directive or European Court of Justice (ECJ)?
  • What will be the impact of the loss of intra-community trading status for UK companies? (Suspected answer: sales to EU companies will be treated as taxable imports rather than zero-rated B2B sales.)
  • When VAT rates in the UK are no longer constrained by the EU VAT Directive, will the UK reduce rates on certain products, such as domestic fuel, e-books and sanitary products?
  • Will small UK-based businesses lose the benefit of the EU distance selling threshold relief when selling goods to EU consumers?
  • How will leaving the EU affect reclaiming VAT? (Suspected answer: it will become a much more burdensome process.)
  • How will customs and landed cost be impacted?

Amid all this uncertainty there is one piece of good news: the EU’s one-stop VAT reporting portal, MOSS, is already available to non-EU companies, and it will be available to UK sellers after the divorce is finalized. Learn more about the impact Brexit will have on tax compliance.

Change is the constant

More questions will surely arise as Brexit unfolds. Eventually, there will be answers. In the meantime, prepare for any eventuality by automating tax compliance. Learn more.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.