Nicholas Hallam, of Accordance, considers what the VAT landscape might look like after Brexit.

VAT After Brexit

During the final stages of last month’s chaotic scramble for a Brexit withdrawal deal, it was widely reported (mainly via tweets from incredulous political correspondents) that the sole remaining impediment to an agreement was the nature of arrangements for value-added tax (VAT) in Northern Ireland.

Indeed, to most people it would have been surprising that VAT was holding up the sealing of what, on the face of it, was a pretty remarkable deal. Just a week earlier, following a horribly awkward conference call with Angela Merkel, Boris Johnson’s chances of getting an agreement were pretty much written off (including, it appeared, by some in Downing Street).

Why, then, risk this spectacular turnaround over the fine details of a consumption tax? Johnson had repeatedly talked about the possibility of the U.K. not leaving the EU on October 31, 2019, as a potential “extinction event” for the Conservative Party. “Kick the can,” he declared, “and we kick the bucket.” Why risk annihilation for the sake of VAT?

As we know, Johnson got his deal. VAT in Northern Ireland had indeed been a blocker; but so had customs issues in general. In true Alexander-like style, Johnson untangled the Gordian knot of tax and customs regulations at the Irish border by—at least according to his onetime allies in the Democratic Unionist Party—chopping right through it, leaving Northern Ireland with a significantly different customs and revenue regime to the rest of the U.K. As part of the Johnson deal, VAT on goods in Northern Ireland would be treated according to EU rules—not those of the U.K.

Of course, as it turned out, any relief generated by the new withdrawal agreement was short-lived. Johnson declined to allow Parliament as much time as it would have liked to inspect the deal—and to perhaps change some of its fundamental aspects through so-called “wrecking” amendments: the Johnson regime’s particular fear was that Parliament would attempt to include the whole of the U.K. in the EU’s Customs Union.

With no-deal off the table, and Johnson certain to break his oath not to delay Brexit any further, the Labour Party consented to give the Prime Minister the general election he desired. It will take place on December 12, 2019.

For many Brexiteers, particularly those associated with the European Research Group (ERG), breaking away from the EU’s regulatory regime is the true purpose of Brexit.

It may have been expedient to harness concerns about immigration and the free movement of people in the EU during the referendum campaign, but limiting immigration is by no means a first order priority for committed global free-traders. On the contrary: the free movement of capital and labor is essential for the free-market “Global Britain” project: what Brexiteers dislike is what they see as the incoherent hypocrisy of the European project: notionally economically liberal within, but ferociously protectionist externally. Hence the extreme antipathy to the idea of remaining in the Customs Union.

Brexiteers believe that the U.K.’s trade with the world outside the EU will soon (according to their estimates by about 2030) outstrip trade with the EU, and that the gigantic and rapidly growing economies of—for instance—China and India will be far more important than a complacent, sclerotic Europe to U.K. prosperity during the 21st century.

For Brexiteers, the EU’s high tax, high public spending “social model” makes it uncompetitive now and would cause huge missed opportunities in the future. It therefore makes no sense to Brexiteers to continue be bound by the EU’s regulations: its tariffs, its taxes, its onerous product standards. The U.K. would be fastened to a dying animal.

Read the full article on Bloomberg Tax

By |November 18th, 2019|