Potential for the UK VAT Registration fall to £76,300 – Why?

Another Brexit VAT implication to consider and this time it’s one that arises should the current “Withdrawal Agreement” on the table be the outcome for the UK come 29^th March 2019.

Clearly – whilst we live and breathe VAT here at Centurion – not everyone dwells on the minutiae so to help with the knowledge share we’re bringing this potential practical issue to wider attention.

The European Union loses about €150 million in VAT every year and to reduce that lost revenue it published its EU VAT Action Plan back in April 2016. As a part of that Action Plan there are proposed changes aimed at Small and Medium sized Enterprises (SME’s).

One of these is that each EU member of the Single Market would remove small businesses from the VAT registration requirement where their turnover did not exceed a maximum set of €85,000 (£76,300). We must remember that whilst the UK has a VAT registration threshold, currently frozen till 2022, of £85,000 – this is the highest threshold in the EU and member states such as the Netherlands and Spain have no threshold at all.

Thus, whilst this EU proposal would reduce the VAT burden on businesses in other EU states, here in the UK it would have the reverse effect and add more businesses to the VAT register.

Why would the UK be affected by this plan though as we are to leave the EU in March?

In a “No Deal” scenario it would not affect us. A “No Deal” means we drop out of the Single Market and with that are removed from all EU VAT administration, legislation, controls and simplification rules – effectively the UK could set its own VAT rates, thresholds and VAT treatments of goods and services post “No Deal”.

The issue will arise if we depart the EU under the currently proposed Agreement as the UK will create a “transitional” period - to December 2022 potentially - during which time the UK would need to adhere to any change in EU VAT Directives.

In addition, Northern Ireland is intended to remain aligned with EU VAT legislation as a part of the “Irish Backstop” to avoid the return of border controls. That “backstop” could be indefinite we are told therefore even after December 2022, when the “transitional” period ends, these or indeed any VAT changes from the EU would apply to businesses there even if not across the wider UK.

We have already seen the Chancellor back away from a major VAT Threshold reduction in his recent Budget – and there are political and economic arguments for and against that step – to choose to freeze the threshold rather than reduce it. The level of VAT rates and the level of the VAT Registration threshold are tools in the “Economy Toolkit” for any Chancellor.

As the New Year starts and March 29th comes ever closer it’s this level of detail, of the practical effect on businesses of any position they take, that Parliament needs to focus on. Businesses need the time to plan for whatever VAT and trade changes will arise and that’s irrespective of the nature of our departure – Deal or No Deal.

An award-winning VAT team is what you’ll find at Centurion – evidence of the quality of our VAT advice and service can be showed by our long-term retention of clients. Whatever your VAT issue – BREXIT, Making VAT Digital, Partial Exemption or Property then do make contact with a call or email emailus@centurionvat.com