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Brexit Update – VAT

Article Date: 04 December 2020

The most pressing question being asked at present is what Brexit means in terms of VAT.

There are no certainties but the following is a short summary of what is understood at present.


VAT was harmonised within the EU in order to reduce the distortion caused by imports and exports that would otherwise give a competitive advantage to a member state and produce a commercial distortion of free trade.

Brexit has two simple effects upon VAT;

  • The UK will no longer be in the EU and the VAT obligations will cease immediately
  • Northern Ireland remains within the EU VAT zone

Theoretically, the UK could abolish VAT post 31 December 2020. This is considered very unlikely but more plausibly the UK might amend the structure of UK VAT to suit its own commercial interests. In particular, a lower rate of VAT and a standard rate of VAT to simply the VAT system are both considered possibilities.

UK (excluding Northern Ireland) – What is the current position and how will it change post 31 December 2020

Currently, for EU transactions, VAT is not charged on goods or services.

Instead, the recipient is generally required to account for VAT (“acquisition tax”) which is typically an accounting transaction on the taxpayer’s tax return.

Example 1 – current position

  1. The supplier zero rates the EU export reporting no VAT on its VAT return
  1. The importer self invoices the goods or services using the importers VAT registration number
  1. The VAT is declared on the importers VAT return
  1. The supplier records the sale on its EC sales list
  1. The supplier submits an intrastate declaration reporting the nature and value of the export

When the UK leaves the EU, it will become a “third country”.

The Seller will not charge VAT on the sale but the importer will in the destination country when they sell it on to a third party

Example 2 - the position post 31 December

  1. The supplier zero rates the EU export
  1. An export declaration will be made – there are proposals under discussion that are intended to simply this process
  1. The import of the goods will require an import declaration and import VAT will be payable
  1. In some instances customs duties will be payable upon import
  1. The payment of the import VAT will depend upon who is the “importer of record”.

If the importer of record is a business in the export country, no further VAT registration will be necessary.

If the importer is the UK supplier (because there is no locally based importer), the UK supplier will need to register for VAT in that country in order to reclaim back the VAT.

This will have commercial impact.

Firstly, VAT will be payable as opposed to being simply an accounting transaction on the taxpayer’s tax return.

Secondly, if the UK supplier is the importer, the supplier will need to register and obtain local tax assistance in order to recover local VAT paid.

Services, and in particular digital services as opposed to goods, use the MOSS system to account for VAT through a single portal.

At present, this system will be denied to UK service providers; they too will have to register for VAT in every country where services are provided.

Perhaps more commercially important is the unresolved question of whether or not service providers will be able to sell services into the EU unless they have local establishments to make those supplies?

Northern Ireland – What is the current position and how will it change post 31 December 2020

The UK will be a third country as far as Northern Ireland is concerned and goods and services will be subject to VAT when they are imported.

This currently affects unusual matters like margin scheme cars but also will extent to accounting and legal services.

If you are a VAT-registered business trading in Northern Ireland or between Northern Ireland and the EU you need to tell HMRC, so you can continue to account for VAT on acquisitions and dispatches.

This can be done on the link set out below.


The above rules are subject to change and simply represent the current publically available information. It is likely that there is more to be announced very soon.

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