No-deal Brexit – what it means for VAT

Shahid Miah, director of fraud solicitors, DPP Business & Tax, looks at how VAT will be affected if we have a no-deal Brexit.

Birmingham, UK: Nobody really knows how Brexit will pan out on the 31st October. Will we leave with a deal, will we not? It’s still very uncertain. But for business owners, Brexit might affect a number of things in their organisation. One of those is VAT.

This is important when thinking about Brexit because once the UK leaves the EU it will theoretically no longer be bound by the EVD (The EVD has a direct and overriding effect on all EU Member States). This will mean the UK could possibly be allowed free to amend its VAT rules. But what does that mean?

While we await the confirmation of a deal between our government and the EU, we know that any changes to the way in which businesses export or import goods and services between any EU member state and the UK are liable to have a profound knock-on effect on logistical matters, cash flow and accounting at the very least.

So what will happen to the goods and services after Brexit, and how will a no-deal Brexit affect VAT?

How Does Brexit Affect VAT at the moment?

After Britain had joined the EEC (European Economic Community) in the 1970s, the country adopted “Value Added Tax” – or VAT – a system that had first originated in France. Following our departure from the EU, we will still be required to pay VAT when trading within the EU.

The UK will not formally leave the EU for some months – potentially not until the end of October 2019. Once this happens, there will be a transitional period as the UK is gradually extracted from the legislation that binds its various aspects to those of the EU. Up to and during that period, it is likely that there will be no change whatsoever in the way we pay VAT.

The Current UK/EU VAT Arrangement

At present, most goods and services sold within both the UK and EU are subject to VAT.
Goods that are brought into the UK from the EU are usually referred to as “acquisitions”, and goods brought in from outside the EU are usually called “imports.”

There currently are no customs rates to be paid on UK acquisitions from within the EU, and VAT is charged at the normal UK rate of 20%. This can be claimed back later via a tax return. B2B acquisitions are accounted for using a ‘reverse charge’ procedure undertaken by the buyer on their tax return.

The UK government predict that there will be no major change to VAT rules for most companies following Brexit. However, depending on the circumstances under which we leave (i.e. with a deal or without), there may be a number of changes that UK companies trading with EU member states should be aware of in order to prevent any major disruption to their logistics, supply chains or cash flows.

What Might Happen to VAT if there is a No-Deal Brexit Scenario?

The impact a no-deal departure will have on international trade taxation is still unclear. Although most of the legislation involved is likely to stay the same, it is likely that there will be a number of changes.

Specifically, the UK will be considered a non-EU country following Brexit and, as such, the Union’s rules regarding trade between its member states and the rest of the world will then apply. UK businesses would be required to pay VAT on goods entering the country in the same way as other non-EU territories.

How will Brexit impact the supplies of goods and services?

If the UK leaves the EU without a deal, imports from non-EU countries will also apply to imports from the EU. A customs declaration will be required and import duty and import VAT will be payable unless the goods are entered into a customs procedure or the product qualifies for duty or VAT relief.

There will, thankfully, be changes to how import VAT is paid by VAT registered businesses. Post-Brexit, postponed accounting for import VAT will be introduced. This means that VAT registered businesses would be able to account for import VAT on their VAT returns rather than pay when the goods are imported into the UK.


Following a no-deal Brexit, the arrival of goods from UK businesses are likely to face VAT and customs duties. VAT registered companies importing goods into the UK will be able to account for the VAT they owe on their tax return instead of paying it upon the arrival of their goods. This was recently introduced by the UK Government as “postponed accounting”.

VAT on goods entering the UK as parcels sent by overseas businesses

If the UK leaves the EU without a deal, goods entering the UK as parcels sent by overseas businesses will need to pay VAT. Provided they are already relieved from VAT under domestic rules, for example, zero-rated children’s clothing.

Parcels that are valued up to £135, a technology-based solution will allow VAT to be collected from the overseas business selling goods into the UK. At the point of purchase, overseas businesses will charge VAT and will be expected to register with the (HMRC) digital service and account for the VAT due.

VAT on vehicles imported into the UK

If the UK leaves the EU without a deal, anyone who is importing vehicles into the UK should still continue to notify the HMRC. They can still do this online through the Notification of Vehicle Arrival Procedures (NOVA). It is important to note if you plan to use the vehicle on UK roads, the DVLA will not register a vehicle brought into the UK, unless it has a NOVA notification.


Before exporting to another country, businesses should check the rules in each country they want to export to because if there is no-deal Brexit, the EU VAT refund system will no longer be available. Businesses will need to register for VAT in the country they want to store and supply goods to.

Furthermore, distance-selling arrangements will no longer apply to UK businesses and UK businesses will be able to zero-rate (not charge VAT at the point of sale) on sales of goods to EU consumers.

Zero-rate sales to EU businesses will still be possible for UK VAT-registered businesses, but EC sales lists will no longer require completion.


The aforementioned “place of supply” rules are likely to continue to apply to the export of services following a no-deal Brexit. However, there may be changes to VAT deduction rules for insurance and financial services provided by UK businesses to EU member states. The exact implications regarding this change have not yet been detailed.

VAT Refunds

The UK will have to follow the same procedures as other non-EU countries when claiming VAT refunds if the no-deal Brexit goes ahead.

Immediately after Brexit, the current system by which UK businesses will be able to claim VAT refunds within the EU will be closed. Following this, the 13th Directive refund scheme must be used. This is a method used by non-EU countries and requires businesses to submit hard copies of all forms and invoices.

Following Brexit, a new scheme will be introduced that follows a similar process to the 13th Directive. Until this EU businesses will be able to manually claim VAT refunds incurred prior to Brexit. The deadline to do this will be 30th September 2019 for VAT incurred in 2018 and 30 September 2020 for VAT incurred between 1 January 2019 and the final Brexit date (October 2019).

What Might Happen to VAT in a Brexit Scenario With a Deal?

There are a number of possible scenarios when it comes to the future of VAT should the UK leave the EU with a deal.

Under the “Chequers” deal proposed by Theresa May, the UK would continue to benefit from the same VAT system that applies to the rest of the EU – however, based on previous negotiations, it seems that the EU is unlikely to accept this part of the proposal. A “Canada-plus” deal would also see the UK utilising the EU VAT system, with VAT required to be administered at the borders.

A “Switzerland” style deal, on the other hand, would see us treated as a non-EU country except for the aforementioned “place of supply” rules and use of the reverse charge.

Current UK VAT legislation primarily centres around the UK’s VAT Act 1994, which is in turn based on EU VAT Directive 2006/112/EC (“EVD”) – a directive that is applied in different ways and to different degrees within each member state. Whether the UK leaves the EU with a deal or not, it’s likely that after Brexit, we will no longer be required to adhere to the legislation within the EVD – meaning there is likely to be more flexibility, and that we may be able to negotiate arrangements with each member state individually.

As is the case with a number of matters regarding the UK’s interaction with EU member states following our departure, the precise outcome of Brexit regarding trade is yet to be ascertained. Until we have a clear deal it will be difficult to predict where the UK will fit in terms of the wider world’s trading landscape. However, it is likely that leaving without a deal will lead to our businesses paying VAT and excise duty upon import, while our exports will be zero-rated – in a similar system to the way taxation and customs duties work between the EU and the rest of the world.

This article was written by a solicitor at DPP Business and Tax


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