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UK Brexit VAT and customs update

  • EU VAT
  • 26 November 2018 | Richard Asquith

UK Brexit VAT and customs update

The EU27 governments have now agreed the Brexit Withdrawal Agreement (WA) which sets out the terms of the UK’s exit from the EU on 29 March 2019. This includes a 19-month transition period until 31 December 2020 during which time the UK will remain within the EU VAT, Customs and Excise regimes. There is an option to extend this transition period further, potentially to December 2022, although the WA simply refers to “December 20XX”.

The EU Council also agreed to the non-binding political agreement on a future Free Trade Agreement to be negotiated between the EU and UK after 29 March 2019.

Below is a summary of the next steps, and the contents of the agreement in terms of VAT and customs, including the Northern Ireland backstop clause.

Next steps to ratify the Withdrawal Agreement

  • The UK Parliament must vote to accept the WA. This is scheduled for 11 December 2018.
  • The WA must then be majority ratified by the EU Parliament.
  • The Agreement is then adopted into UK legislation prior to the 29 March 2019.

Should none of the above happen, then the UK will automatically drop out of the EU and its VAT regime after 29 March 2019. There will be no transition period.

VAT and Customs and the Withdrawal Agreement

  • The WA’s transition period means the UK stays within the EU VAT regime until the end of 2020, and businesses will continue to enjoy the existing VAT simplifications, including:
    • Nil-rating on cross-border B2B transactions
    • Distance selling VAT registration thresholds for e-commerce businesses selling to consumers in the EU27
    • MOSS single VAT filings for UK-registered sellers of electronic services to consumers resident in the rest of the EU
    • The right to recovery EU27 VAT on businesses-related expenses via the HMRC electronic portal (‘8th Directive claims’)
  • The European Court of Justice will continue to have final jurisdiction on VAT-related issues for the UK, and judgements would have a binding effect over UK VAT law.
  • Depending on the final transition date end period, the UK may still have to introduce EU Action Plan VAT reforms, including:
    • The 4 Quick Fixes to the existing VAT regime
    • Freedom for member states to set reduced-VAT rates
    • Extension of the MOSS single VAT return to B2C goods sales across EU borders
    • Definitive VAT regime: moving to charging VAT on all cross-border B2B transactions

Northern Ireland backstop – Single Customs Territory

A ‘Backstop’ protocol was included in the WA to maintain a long-term open border between Ireland and Northern Ireland in accordance with the Good Friday Peace Accord of 1998. Both sides agreed that in the event that no frictionless-trade solutions could be developed post transition period, Northern Ireland would remain within the EU Customs Union for goods – not services.

This would also require many EU Single Market provisions to remain in force in Norther Ireland. It is unclear how these would be enforced and policed – potentially requiring goods inspections with Northern Ireland. The details are to be worked out after 29 March 2019 by joint Withdrawal Committees.

If this backstop is triggered to prevent the need for a customs border between Northern Ireland and the rest of the UK - effectively in the middle of the Irish Sea - this backdrop would be extend to the UK as a ‘Single Customs Territory’ This is a type of Customs Union between the EU and the UK.

Northern Ireland would also have to remain part of the EU VAT regime to prevent VAT checks (e.g. products; VAT value declarations for customs; and anti-smuggling measures) at the border. But the UK would continue to administer and collect VAT in Northern Ireland. It is not clear what would happen if the UK wished to significantly deviate from the EU of VAT rules once the backstop came into place. Northern Ireland VAT would also be subject to ECJ VAT rulings.

The UK would be unable to exit the Northern Ireland backstop without the mutual consent of the EU.


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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.