Rob Janering advises on how you can prepare for and manage the Brexit process from a VAT perspective.
UK politics and business are changing at a rate of knots. At the time of writing, the UK’s future relationship with the EU is unclear, and the shape of our future VAT landscape is yet to be determined. What we do know is that a no deal, hard Brexit or Norway style arrangement all point towards a definitive rupture with the European VAT Directive. Indeed, whichever permutation of a deal (or no deal) is settled on, we anticipate that there will be significant changes to VAT operations for businesses that trade internationally. Our analysis shows that hardly any aspect of cross-border VAT will remain unchanged. Goods and services, exports and imports, registrations and fiscal representation, and legal jurisdiction: all must be reconsidered from a VAT perspective after Brexit.
For accountants working in or supporting businesses that trade internationally, this lack of clarity is difficult to manage. So too is the relative certainty that any change which occurs to trading frameworks will create winners and losers. But with this uncertainty comes an unprecedented opportunity.
In the normal scheme of things, change occurs in a slow and evolutionary manner. Brexit – for all its possible pitfalls – gives accountants the potential to fast track change, to review their processes and procedures, and to get their houses in order.
Of course, few UK businesses have a detailed working knowledge of differing VAT regulations across the EU. Nevertheless, the EU will be the UK’s largest export market for the foreseeable future. The UK may be leaving the EU, but it is not leaving Europe; and it is vital that UK businesses continue to feel at home trading there. Accountants will have to consider their clients’ business structures carefully, considering what
relationships they have either now or in the future with Europe. Whether those clients are involved in large scale distribution or multi-channel retail, industrial manufacturing or app development, they will have to deal with complexity in the VAT environment.
VAT, a tax on consumers gathered by businesses, is a highly important source of revenue for governments across the EU. With digitalisation increasing apace, changes and reforms to VAT are frequent and material. Brexit,with its implications for supply chains, is another challenge to face. Our clients want to be good tax citizens; and they want to be able to continue to expand in Europe: we help them achieve those goals as efficiently as possible.
No one can predict the future, but everyone involved in a business can take the requisite steps to ensure they are prepared. We recently conducted research which found that three quarters (75%) of businesses had not started preparing for Brexit. This is an astounding figure. The biggest shake up to British politics and society could be but weeks away, and there are many businesses desperately ill equipped to
When it comes to managing regulatory changes and their impact on cash flow and the movement of goods, it will be financial teams bearing the burden.
There is a clear imperative to better manage the uncertain waters of post-Brexit Britain.
Those UK companies that are in full preparation mode are considering a range of scenarios. How the reverse charge procedure would operate after Brexit is a concern for many. Others, particularly e-commerce retailers selling directly to consumers in other EU member states, are understandably worried about fiscal registration obligations in the event of a no deal Brexit.
A fiscal representative is a local entity that can act on behalf of non-EU suppliers (as UK businesses would immediately become in the event of no deal). Currently, the UK follows MARD (the EU’s Mutual Assistance Recovery Directive). Once the UK is out of the EU, it will be much harder for EU tax authorities to collect any outstanding VAT from UK firms; and some will want additional protection in the form of a fiscal representative.
In some countries, the the fiscal representative may take on joint and several liability for any VAT debts due; in others, the fiscal representative would instead provide a registered address for the tax authority to visit or correspond with as required.
Remaining EU member states have different rules about fiscal representation, and may apply those rules inconsistently. Belgium is understood to want to enforce the law fully the day after a no deal; others are less clear, but there is the potential for commercial and legal jeopardy. Whether or not there is a no deal, fiscal representation will be an issue after Brexit.
The principles behind fiscal representation are generally worth thinking about by advisers. As international tax authorities come to rely more on consumption tax revenues, but sellers of goods and services become more geographically and technologically dispersed, issues of VAT responsibility and liability become more acute. The ongoing attempt to make Amazon liable for all of its marketplace sellers’ VAT is the classic example; but all those wanting to be seen as good tax citizens will need to keep…
Accordance article: page 20