How does Brexit effect VAT?

Mar 01, 2019
Cróna Clohisey explains what will happen to import VAT in a no-deal Brexit and the government's proposal to solve the problem.

Following extensive lobbying by the Institute over the past two years, the Irish government joined the UK government in announcing proposals to postpone the payment of VAT on UK imports in the event of a no-deal Brexit. Without the introduction of the postponed method of accounting, VAT would become an upfront cost for Irish and UK traders who trade with each other after Brexit. 

At the moment, for trade between Ireland and the UK, the purchaser is required to self-account for VAT on a reverse charge basis. This means that the supply is generally zero-rated in the member state of dispatch and the purchaser accounts for VAT in their next VAT return. If the purchaser is entitled to an input credit for the VAT payable on acquisition, they can claim this on the same VAT return; thus making the VAT position neutral. 

For example: a trader in Ireland purchases goods for taxable supply to the total value of €10,000 from the UK in February 2019. The Irish trader accounts for VAT on the purchase at the rate applicable in Ireland (23%). A simultaneous input credit of €2,300 is claimed on the next VAT return. Therefore from a cash flow perspective, no VAT is payable on the VAT return in respect of this transaction. 

After Brexit – no postponed method

Looking at this scenario after 29 March 2019 if the postponed method was not introduced, the goods purchased from the UK into Ireland would be regarded as imports from a country outside of the EU. The importer must pay the VAT to the tax authority in the importing country at the time when the customs duties are paid.

Therefore, taking the above example, the VAT of €2,300 that arises for the Irish business on the goods imported into Ireland from the UK becomes payable to Revenue in Ireland immediately on importation in, say, April. The Irish trader then claims an input credit of €2,300 in the March/April 2019 VAT return which might be filed weeks later in May 2019. In contrast to the intra-community acquisition scenario, the Irish trader in this situation has an upfront cost of €2,300. 

The postponed method  

The introduction of the postponed method of VAT accounting will mean that the VAT on imports is not due upfront and will be accounted for at the time the next VAT return is due; therefore helping cash flow. 

Importing into the UK from the EU

Reversing this example, a UK trader imports £10,000 worth of goods from Ireland in April 2019. Without the postponed method of accounting for VAT, UK VAT of £2,000 would arise on the import in April 2019 and any input credit due would then be accounted for in the next VAT return which would be due by 7 June 2019. With the postponed method, all of the VAT of £2,000 along with any input credit can be accounted for on the one VAT return by 7 June 2019.

The postponed method will help the cash flow of Irish and UK traders.