At the moment, it seems that some of the things that block the pathway to a Brexit deal are the issues related to customs and VAT. Even though the value added tax was introduced in 1973 and is, obviously, here to stay, it seems that it is about to see major changes as the UK leaves the EU.
This is because the EU will no longer enjoy the benefits of the EU VAT area – such as the free movement of goods and lower VAT on imports and exports.
Here are the things that you should know about VAT after Brexit!
Current Rate of VAT
At the moment, the standard rate of VAT in the UK is 20% – it used to be 15% back in 2009. Naturally, there are some items that come with a lower rate of VAT – 5% -, namely fruits and vegetables, biscuits, children’s clothes, and so on.
VAT Under EU Regulations
As some of you may know, the European Union Law states that each member that is part of the union must have a VAT rate of at least 15%.
This was decided via a directive that the member states agreed upon in 2006. This particular law also implies that, while countries apply a VAT of no-less than 15%, they will enjoy free movement of goods and other TAX and VAT benefits.
The VAT Issues
First of all, domestic VAT will not be affected once the UK leaves the EU. However, keep in mind that businesses that purchase goods from other businesses have to pay VAT as well.
Once Brexit happens, these businesses will no longer enjoy the EU system that makes trade easier – namely, the European Single Market – and have to pay tax/ VAT.
As mentioned above, this means that UK-based businesses will have to deal with a whole new series of taxes that they have to pay on imports and exports – beside reporting the trades they make, applying for an EORI number, and appointing a Fiscal Representative.
The Main Effects
One of the main effects of the VAT system post-Brexit will be the fact that UK-businesses will have to pay VAT when they purchase/ import/ export goods and not account for it at the next VAT return.
For example, a goods importer will now have to pay the VAT on their goods right at the time of the purchase – rather than at the end of the year, for example, after they may have sold the goods and made the profit.
This is why analysts believe that many businesses will have their cash flow heavily influenced by the new VAT system.
The Bottom Line
Given that more and more people expect a no-deal Brexit, it’s time for you to prepare for the consequences – especially if you are a business owner. If you are curious about how the new regulations might affect your business, a VAT calculator will show how to remove VAT, as well as add it – it will also show you both the net and gross amount, for more precise calculations.
Overall, it is safe to say that businesses should properly prepare themselves for the new import and export rules and, most importantly, be open to alternatives!