Brexit Update December 2016
As the media started reporting a further legal challenge to exiting the Single Market under Article 127, as distinct from the European Union, it proved timely that our Centurion team were also delivering a short Brexit & VAT Update in Cardiff on the 1st December.
With all the confusing levels of information appearing in the press we wanted to ensure our clients and contacts had a clear understanding of the actual VAT backdrop against which the Brexit negotiations would be taking place.
Our hour-long update included commentary from Andrew Norris on impact issues for Corporates and Julie Rawlinson-Smith outlining where VAT regulations currently stood for organisations who are in the Public Sector, such as local authorities and government departments, as well as in the charitable sector whether that is as a University, College, Housing Association or the mainstream Charity sector.
If we are to consider what a “good” VAT system should look like in the post Brexit world we need to understanding how EU legislation currently influences the UK’s administration of VAT.
Over the 43 years since VAT arrived in the UK the tax has certainly increased in its complexity and arguably inequalities of VAT treatment have been created which the Brexit process provides a catalyst to review.
The Charity sector in the UK currently bears an annual irrecoverable VAT cost of £1.5bn for example. The differing VAT treatments applied mean that a local council run sixth form CAN recover all its VAT on its costs where as a College of Further Education CANNOT – even though they may deliver the same A ‘Level course in effect.
There are 28 members state of the European Union of which the UK is one and these 28 states all benefit from being in the same VAT territory. This delivers a core VAT treatment on income liabilities and VAT recovery legislation across the 28 states.
These 28 EU states are also part of the “Single Market” which enables tariff free movements of goods but there are additional countries in the “Single Market” structure who are NOT in the EU for VAT purposes:- Norway, Iceland, Liechtenstein and Switzerland.
Whilst we remain in the EU the UK will continue to make zero rated “dispatches” of goods to fellow EU member states but make “exports” of goods to non-EU members such as Norway, Iceland, Liechtenstein and Switzerland. Differing VAT requirements apply to a “dispatch” as distinct from an “export” – so it’s important to understand how these trading agreements impact on the VAT regulations we have to apply.
As a member of the EU VAT territory whilst the UK is bound by EU VAT legislation it also accesses VAT Simplifications to facilitate trade – an example of which is the Triangulation simplification. This simplification enables a UK business in a supply chain between its EU supplier in, say, France and its EU end customer in Poland, to avoid having the cost and administrative burden of having to VAT register in Poland as a UK business acquiring goods there – when those goods are shipped directly to Poland by the French supplier.
Such simplification would be lost to the UK on leaving the EU VAT territory so UK businesses with suppliers and customers in the EU can start to see where the practical impact of VAT will arise on their businesses.
This and other basic VAT management issues were our starting point for the VAT & Brexit Update we delivered.
If gathering information on this matter is something you’d like to start to ensure your organisation is Brexit ready on the VAT front or is equipped to start to lobby for VAT changes you’d like to see, then give Centurion VAT a call. We’d be happy to share our thoughts with you.