This move however will likely lead to more compliance complexities especially for those that buy and sell within the EU and businesses are urged to take advice.
Once the two year renegotiation period has concluded, the UK’s VAT Act will take supremacy and the UK government will be free to amend the Act to suit its own objectives, including setting VAT rates on key products such as domestic fuel, female sanitary products and e-books.
For those that trade within the EU, however, the landmark vote means that the UK will lose its intra-community trading status. This means products or services sold into the EU from the UK will be treated as imports and will be subject to EU VAT. It has been estimated that this change could cost UK businesses €3.4 billion in so called ‘frontier costs’.
Smaller businesses that benefit from distance selling threshold relief will also be impacted and may think twice about promoting EU sales if they have to be VAT registered in all the countries they are selling in.
EU VAT recovery will become slower and more prone to challenges as UK companies will have to use the paper based 13th Directive regime instead of the simplified 8th Directive to claim back tax.
Additionally, use and enjoyment rules will no longer apply to UK businesses or international companies with a UK head office who benefit from some purchases such as EU-wide software licences being zero-rated.
One benefit that won’t change, however, is the MOSS reporting system which UK providers of digital services will still be able to use as it is open to both non union and EU based companies. However, all companies will need to review their accounting and invoicing software so that it can accommodate the new processes and tax codes.
Brent Goodwin, Senior VAT Manager at Newby Caslteman said, “Whilst the result could have both pros and cons for UK businesses, we can be sure that the tax arena is only going to become more complex.
Therefore it is absolutely crucial that all UK businesses and especially those that buy and sell goods from and to any of the remaining 27 EU countries speak to a professional about their VAT obligations and how these may change once the separation is complete.”