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Brexit UK to benefit from EU VAT reforms

  • EU VAT
  • 14 October 2017 | Richard Asquith

Brexit UK to benefit from EU VAT reforms

Post-Brexit UK businesses may receive an unexpected benefit from recently announced proposals to create a single EU VAT regime in 2022.

The potential introduction of a reforming destination-based VAT system will mean the UK’s loss of zero VAT rating on EU exports/imports after Brexit will be cancelled out.  This could neutralise up to £85bn on recoverable UK import VAT that will be created on Brexit.

2021 Loss of nil-VAT rating on EU trade

The UK is scheduled to leave the EU in March 2019, with a potential 2-year transition period whereby EU regulations will continue to apply.  This is likely to include the UK remaining part of the EU VAT regime until March 2021.  After this date, B2B imports and exports between the EU and the UK will no longer be nil rated for VAT. Any goods sold to the UK will be subject to UK import VAT of 20% - (and vice-a-versa on sales of UK goods to EU27 countries).  Based on 2016 trade figures this could generate UK import VAT liabilities of £85bn. This should be recoverable, but there may be delays and some leakage of repayments.

2022 EU reform to destination-based VAT

In an effort to tackle the EU’s estimated €50bn VAT fraud problem, the European Commission (EC) last week proposed removing the zero-rating VAT exemption on intra-community supplies.  This would make all EU cross-border sales of goods and sales subject to VAT in the country of the customer – destination based VAT.

If the EC is successful, the much-vaunted threat of Brexit UK businesses losing the zero-rating exemption in 2021 would be lifted as all cross-border EU trade would lose the exemption, too, in 2022.

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VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He is part of the European leadership team which this year won International Tax Review's Tax Technology Firm of the Year. Richard qualified as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.