"It's Brexit!": the possible impact on VAT and customs duties

It is not likely that Brexit will actually happen until mid or late 2018. The process of negotiating terms of exit is expected to be 2 years from the execution of Article 50 of the Treaty of Lisbon although even this time limit can be extended. Until the UK exits the EU, the current VAT and customs duty legislation within an EU framework remains in place. What exactly happens after the period of negotiation is uncertain which makes it very difficult to predict the precise impact of Brexit.

It is extremely unlikely that the UK government will change UK VAT law in the short term in any significant way as a result of Brexit. As VAT accounts for approximately 20% of tax revenue in the UK, it would be hard to imagine that VAT would be replaced or materially changed in the short to medium term. In the 2 years after the Brexit vote, it may be that the standard rate of VAT is adjusted to try to stimulate consumption or bolster government revenues. However, this depends on the economic circumstances and other economic pressures on the UK government. For the time being it is expected that very little about UK law will change in this two year period.

Once Brexit becomes effective, the UK VAT landscape could of course change much more depending on exactly what form Brexit takes and what new arrangements, if any, are negotiated between the UK and the EU. Hereafter we list several VAT and Customs implications which could follow Brexit in 2018 or later.

Supplies of goods (B2B) – Goods leaving the UK and arriving in the EU will no longer be considered intracommunity transactions. They will be zero rated exports of goods from the UK and will be treated as imports into the EU country of destination. These supplies to and from the EU will therefore no longer be subject to Intrastat reporting nor will European Sales or Purchase Lists be required to be submitted. Goods coming into the UK will be subject to import VAT and duty, if applicable. However, if the UK becomes part of the European Economic Area (‘EEA’) then duties will not apply. All this will depend on the terms of exit and whether an EU-UK trade agreement is successfully concluded and tariffs will exist between the UK and EU on certain products.

Consumers/retail/distance selling – Depending on the detail of the negotiations, it is likely that online retailers selling from the UK will no longer be subject to distance selling rules post Brexit. They will instead be making exports which are zero rated and subject to import VAT when they reach the EU. However, the UK may still benefit from low value consignment relief (‘LVC’) in the country of the consumer, in which case no VAT may be due on small online purchases (but please note that this exemption is currently under review by the EU Commission and will probably be abolished). UK consumers buying from overseas and EU online retailers may as well benefit from the UK’s application of LVC relief.

Place of supply of services – The EU place of supply rules will no longer apply to the UK but short to medium term there is no expectation of any significant change. Cross-border B2B supplies of services would still be free of UK VAT. Supplies of services to and from the EU will no longer need to be recorded on the EC Sales Lists for services.

Travel services - Since non EU travel is currently not taxed under the special regime which applies for tour operators, this could make the UK a more attractive destination for EU travelers but it remains to be seen how this will evolve.

Financial services and VAT recovery – Financial service providers have limited right to VAT recovery in respect of EU or UK activities. If they provide services to customers outside the EU (export of services), they do have the right to recover VAT on costs relating to those services. EU financial service providers that sell financial services (credit, share transactions,…) to UK businesses will have the right to recover VAT on costs relating to those services.

VAT registrations – Overseas businesses having a VAT registration in the UK for distance sales may no longer be required to have that VAT registration after Brexit. The same goes for UK businesses having a VAT registration overseas for distance sales. UK businesses that do need a VAT registration in an overseas country may have to appoint a VAT representative as they will be based in a non-EU country. Without an EU VAT registration, UK businesses can no longer utilise reliefs available for triangular trade.

VAT refunds – UK businesses that incur VAT in overseas countries where they are not VAT registered will have to file 13th Directive VAT refund requests instead of using the HMRC foreign VAT refund portal. Likewise, EU businesses that incur VAT in the UK and who are not VAT registered will have to file UK foreign VAT refund requests instead of using the local EU foreign VAT refund portal.


For more information about this topic, please contact our VAT team:
Stijn Vastmans - Partner (stijn.vastmans@tiberghien.com)
Stein De Maeijer - Associate (stein.demaeijer@tiberghien.com)
Gert Vranckx - Associate (gert.vranckx@tiberghien.com)
Loulou Geboers - Associate (loulou.geboers@tiberghien.com)