A month after the referendum on membership of the EU we are no clearer as to what the future relationship with the EU will be.  VAT is the tax that will be most affected by the UK’s departure from the EU but it is unlikely that it will be greatly changed in nature.  Once the UK leaves the EU it will no longer be subject to the EU Directives that shape VAT legislation nor will the ultimate arbiter of VAT disputes be the Court of Justice of the European Union.  The UK will have more freedom to set the rates and scope of VAT but is unlikely to replace it – it is an efficient means of raising a huge amount of tax (now second only to income tax in filling the government’s coffers).

The main changes will affect those businesses that have customers and suppliers in EU countries.  From the date when the UK’s membership ceases it will presumably become a “third country”  outside the Single Market.  Customs controls will be imposed on all goods entering the country and duties may also be imposed depending on the trade agreement reached with the EU.  Goods exported to EU countries will be subject to customs controls and possibly duties when they reach the EU border. Although the need to complete intrastat returns and ESLs will be gone this may be offset by the more onerous formalities of dealing with imports and exports rather than EU arrivals and despatches.  There may also be cash flow implications for businesses importing goods from EU countries in that they will have to allow for paying import VAT rather than dealing with the VAT through their VAT returns.

For those businesses supplying digital services to non-business customers in the EU there may be a requirement to register in an EU country to use a version of the One Stop Shop.

However, until the UK’s membership ceases we remain a full member of the EU and there will be no major changes to the VAT regime in the short term.  The negotiations on our terms of departure will take at least two years and so there will be plenty of time to adapt to the changes.  For the moment we need to watch for any announcements with regard to future trading arrangements and plan accordingly.