At 11pm on 31 January 2020, the UK officially left the European Union. However, at the same time the long awaited ‘Withdrawal Agreement’ immediately came into force. This will maintain most of the features of the UK’s EU membership throughout a ‘transitional period’ or ‘implementation period’. Find out below what the transition period means for VAT and your cross border trade.
Transitional Period Rules
The transition period will last until 31 December 2020. During which time, the UK and the EU negotiate a new trade relationship. There is provision for the transition period extend for one or two years. However, the Government stated it won’t seek an extension. It has also legislated to prevent itself from doing so.
During the transition period nearly all EU rules will continue to apply to the UK. For UK and EU businesses trading with each other, it is important to know that the UK will still be part of the EU single market and customs union. This means during the transition period the EU rules for VAT, Customs and Excise Duty will continue to apply for the movement of goods and trade up until 31 December 2020.
Therefore, for the next 11 months at least, nothing will actually change in terms of cross-border trade.
However, with future trade talks yet to take place and a possible ‘hard-Brexit’, where there is no Free Trade Agreement put in place, still on the horizon; it will be important as ever for businesses to plan and prepare for all eventualities.
In the lead up to the UK leaving the EU, there had been some confusion with regards to existing VAT schemes in operation such as the UK’s VAT Mini One Stop Shop (MOSS) and EU Refund Directive portal. This was due to HMRC Brexit guidance that was originally published in October 2019 being updated for the leave date of 31 January 2020 but not being explicit that they would only apply in the event that there was no deal with the EU.
HMRC have since informed businesses that this guidance was indeed out of date. They also issued letters to inform businesses that we are in the implementation period; the current rules remain; and there are no new customs procedures at present.
Referrals to the European Court of Justice
The jurisdiction of the Court of Justice of the EU (CJEU) in relation to the application of EU law in the UK will continue as before until the transition period ends.
Referring matters to the CJEU recently came up at the UK’s Supreme Court, the UK’s final court of appeal. Usually the Supreme Court has been under a duty to refer matters to the CJEU where there is a question on how European law should be interpreted. HMRC’s Counsel accepted that the court will have the power to refer questions to the CJEU. It would not confirm whether it remained a duty. This would only last until the end of the transition period. At which time the CJEU will no longer have jurisdiction over the UK. This is unless any future agreement includes such a provision.
It is unclear how existing rulings from the CJEU will apply to UK Law after the transition period. This is due to the European Union (Withdrawal Agreement) Act 2020 giving courts discretion on application of their decisions.
For more information on Brexit related matters or how to plan for future changes, please contact one of our VAT experts.