Where things stand now:
The current fate of the UK still hangs in the balance as the Brexit drama continues to unfold. After two years of negotiations, and much political discord, a withdrawal agreement has yet to be reached. As of Tuesday evening January 15, Theresa May suffered a historic defeat as Parliament officially voted down her exit deal by a sweeping majority. She did, however, manage to survive the no-confidence vote on the following day, which means that for now, she will be spared from early elections.
With only two short months remaining until Britain’s scheduled exit, this latest development pushes the UK further into the unknown. If a deal is not reached quickly, then on March 29, 2019, the UK will be instantly cut from the EU with no 21-month grace period. This would mean that businesses and individuals would have no time to adjust to the new reality and may face sudden restrictions on trade, immigration, travel, and labour.
There is, of course, a significant chance that the no-deal scenario can be avoided, especially since almost all the parties involved wish to avoid this at any cost.
As of now, Theresa May has a few days to renegotiate a deal with the EU and have it approved by the Parliament. If she is willing to make some serious concessions and get the EU to agree to them in this short window, then the deal still stands a chance. If this does not happen, Parliament may vote to extend Article 50 and delay the date of Brexit, giving them more time to negotiate a deal. This outcome would have to be approved by the EU as well. These are currently the two most viable options other than a no-deal scenario. Although the government has emphasized its desire to avoid a no-deal at all costs, the government has yet to remove the prospect of a no-deal Brexit and has been warning the public to prepare for such an outcome.
Deal or no deal, one thing is certain: Brexit’s effects will be far-reaching and may take years to fully set in. Whether it be changes in travel regulations, citizenship status, or trade laws, it is bound to affect every UK citizen and business one way or another. The government has published extensive literature on how businesses will be affected by new trade regulations after Brexit. The following is a brief and simplified explanation of how UK imports and exports will be affected by a Brexit with no deal.
Currently, UK businesses importing goods from the EU are not required to pay VAT upfront, rather they can defer payment of VAT until they file their annual VAT return. However, on imports from outside the EU, VAT is paid upfront. A great concern of many businesses has been that they will be faced with huge upfront VAT bills on imports from the EU come March 30th, 2019. This will severely disrupt the cash flow of many businesses who until now have been able to defer payment of input VAT until the output VAT has been collected.
The good news is, HMRC has announced that if the UK leaves the EU without a deal, postponed accounting for import VAT will be introduced on all imports into the UK. This means no VAT will be paid upfront by any business importing goods into the UK. They will extend this allowance to non-EU imports so as not to create a trade disadvantage with other countries.
There will, however, be some less-desirable effects on imports in a no deal scenario.
For example, the Low-Value Consignment Relief Law will be abolished. This means all goods entering the UK by parcel will be subject to VAT charges and there will no longer be an exemption on goods under 15 pounds.
Most critical is the change in customs duties on all imports from the EU. Currently, goods can flow freely from the EU into the UK without being subject to customs. The UK government has not yet decided on a number for the customs rate, but one thing is for certain: it will cost UK importers a pretty penny. Not only will they have to pay customs on EU imports – which were previously exempt – but they will have to face delays on goods held up in customs checks.
If no agreement is reached, UK businesses selling goods directly to EU consumers will no longer have to comply with the EU’s distance selling arrangement. This means they can zero-rate the sale and VAT will be payable by the consumer upon entry into the EU.
UK businesses selling goods to EU businesses will still be able to zero-rate the sale and will no longer be required to complete an EC sales list. However, the UK government will require businesses to supply evidence to prove that the goods have left the UK as it currently does with non-EU exports.
For UK businesses that provide services in the EU, the main VAT “place of supply” laws will remain the same. However, some businesses such as those in the insurance and financial sector may see some changes to VAT laws.
How can you ensure your business is prepared?
With Brexit fast approaching, businesses are faced with much uncertainty. But one thing is sure: VAT requirements are going to change. VATBox is a recognized leader in the VAT recovery domain, having streamlined the entire VAT recovery process. Now more than ever, it is vital that your business has the most advanced and efficient solution in place for VAT recovery. The VATBox platform will be fully up to date on all the post-Brexit VAT changes to ensure your business is in full compliance. With VATbox, your business can navigate the stormy waters of Brexit, safely and worry-free.
Stay up-to-date for future developments.