Relax, the VAT law will probably not change in the next 2 years. The UK must first give the European Council notice of its intention to withdraw and a 'Brexit' agreement has to be negotiated.
The negotiations are about setting the new relation between the UK and the EU and include tax and tariffs. That is already delayed as Prime Minister David Cameron considers that all a task of his successor.
'Brexit' will result that trade between the UK and the EU countries will be treated again as imports and exports and most likely - unless negotiations will have a different outcome - result that customs duty have to be paid when goods move between the UK and the EU (duty rates might change).
As EU law will no longer apply - 'be in force' - the UK regains the right and flexibility to introduce own VAT legislation (again). That can be done much quicker as EU approval is also no longer required:
- VAT rates and the scope of zero-rating and exemption.
- Reversed CJEU decisions (e.g. broader scope of exemptions)
- Place of supply rules that could result in double taxation or non taxation
The interpretation of UK VAT law during litigation becomes a UK matter only at least for issues that took place after the secession. With other words the UK regains full control.
VAT reporting will change as well as EC Sales Lists and Intrastat reporting will no longer apply unless a similar concept is negotiated with the EU. UK businesses that operate in the EU the VAT compliance obligations are impacted and an analysis should be made:
- Appoint a fiscal representative
- Invoicing and reporting requirements
- Simplified trangulations for chain transactions
- Distance sales rules
- Mini One Stop Shop
- EU VAT refund rules
From an operational perspective a company's processes and controls have to be updated to the new situation at hand. ERP systems must reflect these changes and that means that tax determination logics, tax codes, invoice and reporting requirements have to be assessed and new rules implemented as well. IT time has to be scheduled in to make it happen.
That being said businesses will have sufficient time to oversee the consequences and be well prepared. It will probably take 2 years to come into force. Lots can also happen in the meantime. Maybe a next referendum reverses the 'Brexit'. Or United Kingdom will become less united as Scotland and the city of London decide to remain with the EU. The future will tell.
Written by Richard Cornelisse
Richard advises multinational businesses in improving the efficiency and effectiveness of their Indirect Tax Function and Tax Control Framework.
He started his career as a manager at Arthur Andersen and then became an EY partner where he led the indirect tax performance team for Netherlands and Belgium. Currently, he is a managing director of SAP Tax Consultancy Firm.
Richard has over 20 years of experience advising clients on international VAT issues. He is specialized in the tax aspects of financial transformations, shared service center migration, and post-merger integration work.