On 23 August 2018 the UK government issued guidance notes on implications of a so-called “no deal” Brexit, in other words the possibility that the UK leaves the European Union without an arrangement in place with the EU for the post-Brexit period.

In this case the UK would become a “third country” outside the EU from 29 March 2019 without a Withdrawal Agreement and without any framework for a future relationship in place between the UK and the EU.

The UK government states in the main document that it is in the best interests of both sides to reach an agreement on the future relationship between the UK and the EU. Preparations are however being made for a range of potential outcomes to the negotiations, including the possibility of ‘no deal’ Brexit.

The main document is accompanied by a set of technical notices covering various issues including VAT. The government guidance notes on VAT set out the risks faced by businesses and individuals in cross-border transactions if no withdrawal agreement is reached by 29 March 2019 when the UK leaves the EU.

The guidance on VAT outlines the implications for imports and export involving EU member states and the UK. The tax authority HMRC has estimated that more than 135,000 companies exporting to the EU would have to deal with more compliance work in terms of VAT disclosures, customs declarations and other VAT compliance.

Importers

VAT applies to imports into the UK. While the UK remains in the EU however imports from EU member states are intra community transactions and no VAT is due. In the absence of any agreed arrangements with the EU importers would therefore need to begin accounting for VAT on their imports from the EU.

In the guidance the UK government confirms that importers of goods into the UK will not be required to account for the import VAT on imports from the EU. The government is also extending this to importers of goods from other locations.

Exporters

Exporters to EU businesses will need to pay the local value added tax in those locations and tariffs due as these transactions will no longer be intra community supplies. The government advises companies exporting to the EU to obtain specialist advice on their post-Brexit VAT position.

Small e-commerce businesses exporting goods to EU countries will no longer be permitted to sell goods on the basis of their UK VAT registration up to the distance selling threshold. They will therefore need to register and file foreign VAT returns.

Companies supplying digital services such as software and streaming media will no longer have the option of MOSS filing with HMRC and will be required to register for VAT in one of the EU countries.

VAT Refunds for expenses

UK companies incurring VAT on expenses such as hotel bills, taxis or exhibitions in an EU country will no longer be able to reclaim the VAT on their expenses via the eighth directive and will need to use the provisions of the thirteenth directive process involving paper-based submission of invoices. This is likely to involve higher compliance costs and time for the companies.

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