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UK – date for leaving EU VAT regime in doubt

  • Mar 4, 2018 | Jason Moore

UK – date for leaving EU VAT regime in doubt

When the UK leaves the EU VAT regime on Brexit, an estimated 132,000 UK and many more EU companies trading with the UK may lose many VAT reporting simplifications. They may also incur stiff import VAT bills for the first time on goods sold cross-border.

However, the date for this significant change is still uncertain as the UK’s withdrawal talks proceed.  Below are six scenarios and dates for this momentous tax overhaul.

1. 29 March 2019 – Hard Brexit

On 29 March 2019, the UK is set to leave the European Union by operation of the law. This follows the UK’s triggering of Article 50 of the Lisbon Treaty on 29 March 2017, which started a 2-year exit timetable. Since no withdrawal agreement has yet been agreed – meaning a ‘Hard Brexit’ - this is the current departure date for the UK leaving the EU VAT system.

2.  31 December 2020 – EU’s transition offer

The EU has offered the UK a 21-month transition period following the 29 March 2019 Brexit date. During this time, the UK will still remain within the EU VAT regime, including having to accept rule changes and still being subject to rulings of the European Court of Justice. The 31 December 2020 date was set by the EU to coincide with the ending of its 5-year budgetary cycle.

3.  29 March 2021 – UK’s transition offer

Last year, the UK’s Conservative government requested a 2-year transition period following Brexit. This means an exit date of 29 March 2021. Until this date, the UK will still be trading within the EU indirect tax system – see above.

4.  22 November 2022 – UK Finance Act

The EU has plans to introduce a Common EU VAT regime in 2022. If the UK is still in the EU VAT regime at this time, it would have to decide whether to join the new regime. If it doesn't, and the UK left at this point, this would be crystallised in the Finance Act 2022, which generally receives Royal Asscent around the 22 November each year.

5.  29 March 2023 – Implementation Extension

The discussions around a 2-year transition period overlook the fact that (since the future trading relationship with the EU won’t be known when it starts) UK and EU companies cannot in fact transition to the new trade rules. The transition will therefore in effect be a standstill period. This implies that a real, further 2-year implementation period will be required to allow businesses to shift to the eventual new trading rules.

6.  Never – reversal of the June 2016 referendum result

An unlikely event. But, for example, if the UK government loses the Autumn 2018 Withdrawal Bill vote by a Labour opposition and Tories rebel defeat, then a second referendum could be called. In this case, the EU would likely permit an Article 50 extension to allow time for that vote. In the event of a remain decision second time around, then the UK would remain within the EU and within the EU VAT system.

Need help with your UK VAT compliance?

Researching UK VAT legislation is the first step to understanding your VAT compliance needs. Avalara has a range of solutions that can help your business depending on where and how you trade. 

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Avalara Author
Jason Moore
Avalara Author Jason Moore
Avalara helps businesses of all sizes get tax compliance right. In partnership with leading ERP, accounting, ecommerce, and other financial management system providers, Avalara delivers cloud-based compliance solutions for various transaction taxes, including sales and use, VAT, excise, communications, and other indirect tax types. Headquartered in Seattle, Avalara has offices across the U.S. and around the world in the U.K., Belgium, Brazil, and India.