Brexit: VAT

Generally countries have their own tax regimes, but one of the key aims of the EU was to remove barriers to trade between member states.  VAT is very much seen as a European tax with member states being required to transpose EU VAT Directives into domestic law.  Therefore VAT is largely applied in the same way across the EU, though there is slightly more flexibility around the rates of VAT applied.  Once the UK leaves the EU fully (on 31^st December 2020 unless the government agree an extension of up to two years) it will no longer be required to apply EU Directives on VAT.

After EU departure the UK will gain control over its reduced VAT rates earlier than it otherwise would - the EU member states have agreed that from 2022 they will also have full rate setting powers.  It will also be possible to reduce the minimum rate of VAT below the 15% stipulated by the EU, however given the significance of VAT to the exchequer it is not likely to result in a VAT fire-sale.

Currently the VAT process is relatively straightforward when trading within the EU and basically when a VAT registered UK business purchases a product from elsewhere in the EU no VAT is charged.  Similarly when exporting goods, provided certain conditions are met, such as ensuring that the goods are going to a VAT registered EU business, it is permitted to zero rate these goods.

Once we leave the EU fully that same business will be charged VAT on any goods from a third country (now including the EU), normally at the same rate as if they’d been supplied in the UK, and will also need to charge VAT on exports.  This VAT can still be reclaimed so in the long run the impact is minimal, however because of the potential impact on short term cashflow the UK has a scheme which allows deferral of the VAT payment.

What might be more noticeable to farmers relates to online purchases from outside the UK.  Currently if a UK customer buys something online from the EU the VAT is normally contained within the advertised price.  However going forward if the value of the goods is over a certain amount (around £25) the recipient will be liable for UK VAT and possibly also customs duty.

The rules for Northern Ireland will be slightly different as per the terms of the Withdrawal Agreement, and this includes the retention of the current VAT arrangements on intra-community supplies across the Irish Border.