What does it mean for my business?
Mrs. May said this week that we cannot possibly stay in the Single Market, so what does this mean on a practical level to businesses in the Midlands?
Although VAT is a European tax, in the short term it is very unlikely there will be any changes in the way we account for VAT. However, as the government effectively has a free hand once we leave the European Union, the picture in the medium to long term could change significantly.
VAT rates
Currently the EU allows us only three VAT rates within strict ranges and only certain goods and services benefit from exemptions. Going forward we can set our own rates. Rates could go up, the luxury rate could return and the government would be free to expand (or indeed contract) the range of goods and services benefitting for a lower or the zero rate. Exemptions could also change and HMRC may take the opportunity to restrict some of these, or remove the exemption altogether and replace with a lower rate of VAT.
Will this happen quickly? Well clearly no one knows but if you are a charity or operating in a sensitive sector, say healthcare you would be well advised to keep abreast of any changes because getting it wrong could be costly.
Costs of cross-border trade
What is more certain is that in the short term there will be significant changes is how we buy and sell goods and services with the rest of Europe. Currently movements of goods of goods from businesses in the UK to businesses elsewhere in Europe are treated as VAT free despatches from the UK, with the customer assuming responsibility for the VAT due on their VAT return. For VAT purposes this is a straight forward accounting exercise and there are no customs duties to be paid.
But as anyone dealing with third country import and export trade will already know movements of goods between the UK and non-EU countries are more complex. VAT free (or zero rated) exports are subject to strict conditions for evidence and there are strict time limits in which the supplier needs to obtain this evidence. Failure to comply results in the supplier having to account for VAT.
The best advice as always is to be prepared so going forward we will be publishing regular articles on what Brexit will mean to local business to help our clients through these uncertain times.
For any help or guidance on VAT contact us on 0845 177 5500 or use our on-line contact form.
Ellen Main-Jeffrey, Head of VAT services