No Brexit Deal, No VAT? Institute Statement

Aug 27, 2018

In the event of a No Deal Brexit, the UK government will introduce rules to allow UK importers extra time to pay the VAT due on goods arriving from both inside and outside the EU, according to UK government statements published last week.  In a statement released on Friday and reported in the Times (Ireland Edition) and the Irish Examiner, the Institute says that while it is optimistic that a future trade agreement will be reached, Ireland should match UK VAT proposals, even if a Brexit deal is agreed.

The postponed method of accounting for import VAT will defer the VAT due on goods that are imported into the UK from the EU and outside of the EU therefore alleviating a cash flow headache for many traders.  Once the UK leaves the EU, VAT becomes an immediate cost for UK importers of goods from the EU as goods are no longer treated as intra-community acquisitions to which the reverse charge mechanism applies.

If the postponed method of accounting for VAT is introduced, UK businesses will instead be able to account for import VAT on their next VAT return rather than paying import VAT as soon as the goods arrive at the UK border. This will apply to imports from the EU and non-EU countries. 

This would have a huge cash flow advantage for traders especially if the importer is entitled to an input credit for the VAT payable on acquisition, they can claim this on the same VAT return. 

Irish traders importing goods from UK will face the same cash and administration burden because VAT on imports from the UK into Ireland will become due immediately on import and payable at the same time as customs duties.   Chartered Accountants Ireland has called on the Irish government to consider the introduction of this postponed method in Ireland for several months now.  For those of you who would like a refresher on the subject, we looked at this issue in detail in Series 11 of Back to Brexit Basics.

Other VAT proposals to note in the event of a no deal are:

  • The place of supply rules will remain the same for UK businesses supplying services into the EU
  • For UK businesses supplying insurance and financial services into the EU, input VAT deduction rules may be changed
  • The UK will cease being a member of the Mini One Stop Shop (MOSS) scheme but businesses that sell digital services to consumers in the EU will be able to register for the MOSS non-union scheme
  • Low-value parcels imported from EU businesses would no longer be eligible for VAT relief
  • Distance selling arrangements will no longer apply to UK businesses exporting goods to EU consumers
  • EC sales lists will no longer be required.

Read all of our Brexit updates and Back to Brexit Basics on the dedicated Brexit section of our website.