Negotiations on the terms of the UK’s exit from the EU have begun.

There will not be any changes until March 2019 at the earliest, but businesses must be prepared for the effects of leaving the EU, the Single Market and the Customs Union.

The main effect on VAT is that on leaving the EU the UK becomes a “third country”.  This means that the current system of accounting for VAT on goods brought in from other EU states is likely to be replaced.  Goods arriving from other EU states will be treated in the same way as other imports and subject to import VAT on clearance through customs.  Importers should watch for any developments on how VAT is going to be dealt with on imported goods, for example, wider use of the duty deferment scheme.

Goods sent to the EU will be zero-rated, as now, but exporters may face delays at the EU border if goods have to be cleared.

After Brexit distance selling rules will no longer apply and so goods sold to private consumers in other EU countries may not be subject to UK VAT but will be subject to VAT in the country where the consumer lives.

Triangulation sales will no longer be possible after the UK leaves the EU and this may require some businesses to register for VAT in other EU countries.

If the UK also leaves the Customs Union goods coming from and going to the EU may also be subject to customs duties depending on any free trade agreement subsequently negotiated with the EU.  Importers may need to apply for or extend duty deferment schemes while exporters will need to make sure their goods are correctly classified and take account of customs procedures at the EU border.

Importers and exporters should also consult with hauliers about how they will manage the changes.

In the longer term leaving the Single Market means that goods that meet British standards may no longer automatically meet EU standards and so exporters will need to monitor any changes in EU standards to ensure that their goods may still be sold in the EU.

Where services are provided to private consumers in other EU countries there is sometimes a requirement to register for VAT in those countries.  At present this can be dealt with be registering for the VAT Mini One-Stop Shop (MOSS) which allows the VAT liabilities in other EU countries to be dealt with through one return to HMRC.  Once the UK has left the EU this will not be possible and a business in this situation will either have to register in other EU states or register for the equivalent of MOSS in one of the other states.

For the next few months there will probably not be any discussion of the future trading arrangements with the EU but look out for any announcements and start planning for potential changes.