The Impact of Brexit on VAT

The impact of Brexit on VATArticle 50 has not been invoked yet, meaning that Britain still remains in the EU. However, we’re already beginning to see the impact of Brexit on VAT, among other things. The pound dropped immediately since the leave vote was announced, and a lot of EU companies with Head Offices in London are considering a move to a more EU central country with fixed export and import tax.

Realistically, leaving the EU gives HMRC free reign to impose its own VAT laws. This is because UK VAT, although based in UK Law, is influenced and must apply to EU directives set out by the Union. The directives basically set out ways in which trade and tax is easy to compare and understand throughout countries in the European Union. This means that the set VAT tax rate in the UK is currently at 15%. This rate may stay the same up until the mid 2020’s. This is because we base a lot of our decision off of EU case law, and if we have none of our own how will we implement a correct tax rate, if we decide to do so in the coming years?

VAT was a creation of the European Union, and is the biggest influence on any tax in the UK. Once we leave the European Union, we may have to soften legislation for banks coping with struggling demands and strains on tax. The UK will also have to rewrite some domestic VAT legislation in the wake of invoking article 50, as it was recently changed to fit perfectly in line to fit with EU policy. The UK must now negotiate with the European Union on a working tax relationship neighboring countries can expect, this includes exports and imports, of which tax could rise or fall in the coming years.

The likelihood of us changing our VAT law though is very slim. The implementation of VAT here in the UK has seen a profit for the economy of 21%. I doubt we will want to get rid of that profit any time soon. As well as this, despite VAT laws lying under EU directives, they are held under HMRC and UK publications, meaning that we won’t need to change them any time soon. However, the European Union may extend the right to withdraw any law it has implemented within the United Kingdom since the country joined the Union in 1973. That’s a lot of laws to go over and change if they do decide to do something along those lines.

Although a change in our VAT tax isn’t the only thing that would change if the European Union decides to intervene. The block on tax incentives implemented by the European Union, which was put into place a few years ago, could be lifted as well, along with merger directives, capital duties directives and EU social security agreements. All of these would have a large effect on the UK economy if take away from UK law, however we would write new directives and incentives in the coming years, which should equal out the economy again. If EU customs duty regulations are taken away from us, it could leave the UK with no EU customs duties, and we will have to negotiate with the European Union once again on new customs regulations.

Richard Asquith, a VAT expert, has been asked by several US and Chinese companies in the hours since the vote to leave the European Union, if they should move their distribution centres to a country more centrally located within the Union. He has also had a multitude of questions regarding the EU VAT supply chains, and whether they need to restructure their business around any upcoming changes. Asquith has had the response to all of his clients. Simply sit and wait. There is no telling what will now happen to the UK when it invokes article 50 and leaves the European Union.

The HMRC has since commented on Brexit, stating that everything is continuing as normal for the foreseeable future. A a recorded message on HMRC’s telephone headline states this to any of those wanting to ask questions about Brexit: “There are no changes to any taxes, tax credits, child benefits, or other HMRC services as a result of the vote on the EU referendum.” The tax authority have also published a guide on the impact of Brexit and the movement of goods, services and people between the UK and the EU. It states that there will be no change for the forseeable future. The guidance also explained that: “We are still a member of the EU. Until Article 50 [of the Lisbon Treaty, the process by which a member state can leave the EU] is invoked, we will continue to engage with EU business as normal and be engaged in EU decision-making in the usual way.”

HMRC’S New Controversial Tax Venture

Taxes, nobody likes them, everybody is required to pay them, and that’s that. However, there are some charges that might be seen as taking the taxing law too far…

If you haven’t already got an adult colouring book, there you’re definitely in the minority. Adult colouring books are a craze that has grown in the past couple of years, with them now even used in healing treatments for their therapeutic qualities. There is really nothing more to them than the fact that they are a more complex version of a child’s colouring book, but with increasing popularity comes increasing cost, and HMRC are arguing that these booksellers should now be paying tax. And it’s sparked all manner of debate. www.hmrctalk.co.uk

Controversy

Only in the taxing world could a colouring book cause so much trouble. This bizarre claim that the books should be taxed comes after the popularity of some of them have caused sales to increase in the likes of major bookstores WH Smith and Foyles. Bookstore Waterstones has seen a 300 pc increase in sales since the rise of adult colouring books. It has also been noted by The Publishers Association that book sales grew by 0.4 pc last year, which is the first significant rise in four years. But with all of this selling success, will Britain now have to pay for its love of doodling?

There was never much attention paid to the world of adult colouring from HMRC before, seen as little more than a novelty, but now it has become a big business, and they want in. As children’s colouring books do not receive any VAT as the law, it seems that the adult versions have followed suit, until now. Arguing that the colouring books are clearly targeting adults, HMRC do not think the same rule should apply. Sales of the Adult colouring book are said to have amounted to 20.3 million.

At the moment, many books are exempt from VAT, but some are still subjected to the payment such as stamp books and books classed as stationary such as diaries and journals. The fact that some books are taxed and some are not has caused a lot of current confusion and there are calls for the system to be revised. The Publishing Association are working with major bookstores to contest against the new VAT, but if the plans go ahead it will see retailers and publishers owing VAT on their margin of the sale, and so if confirmed HMRC are owed a rather vast amount of money.

The EU Referendum – What Is It And Will It Affect UK Tax and VAT?

BrexitThe EU referendum, June 23rd of this year, will determine whether Britain stays or leaves the European Union. Almost everyone can vote in the referendum in the UK, as long as they’re aged 18+, and have registered to vote in the UK. The referendum is happening because David Cameron promised the UK he would hold one if he won the 2015 election. This was due to growing calls from members of the Conservative party, as well as members of UKIP, who argued that Britain citizens have not had a say concerning EU matters since 1975.

The EU is an economical and political partnership consisting of 28 European countries. It began after WW2 in a bid to foster economic co-operation. It effectively made Europe a single market (one giant country), allowing a freedom of movement throughout the member countries.  It has its own currency – the euro- which is used by 19 of the countries in the EU. The European Commission is effectively the civil service of the EU. It has a 28 member committee, a member from each country, and makes new laws concerning the EU. Its’ head quarters are in Brussels. The Council of the EU is also based in Brussels, and consists of members from each individual government in the EU. They usually give directions on how the EU should be working. The European Court of Justice makes sure that all of the rules imposed by The European Commission are imposed throughout Europe. It also tries to settle quarrels between European countries.

Before the referendum, David Cameron came to an agreement with European Leaders that guarenteed that, if the UK stayed within the EU, the terms of UK membership within the EU, would change. Cameron has stated that the terms would take effect immediately following a “stay” vote. The main changes to the terms are:

  • Migrant Welfare Payments – Migrant workers arriving into the UK will not be able to claim tax credits, and other welfare payments, straight away. However, they will gradually earn the right to claim the longer they stay in the UK. Cameron believes this will stop large groups coming into the country.
  • Keeping the pound – Cameron stated that Britain would never join the Euro, and that the UK currency will always be the pound.
  • Child Benefit – Migrant workers will still be able to send benefit payments to another country, which has always been the case, however, the payments will now be set at a level reflecting the cost of living in their home country, rather than the full UK rate.
  • No more EU interference – UK will not be part of a move towards an “even closer union”. As well as this, Cameron secured a red card system, which would give national parliaments the power to block unwanted legislation together.

According to recent polls, Britain is evenly split on the decision. There are definite pros and cons to both choices. There are also two definitive campaigns regarding the EU referendum and a potential Brexit (British Exit). There’s the Vote Leave group, who believe the UK should leave, and that the EU is holding the country back. They’re affiliated with Farmers for Britain and Muslims for Britain. There’s also the Britain Stronger in Europe group, who are backed by Conservative members and a handful of Labour MP’s. They’re also funded by the owner of Sainsburys. You can read more of their points on their respective websites.

The announcement of the decision will be made at 10pm on June 23rd at Manchester Town Hall.

Will The EU Referendum Affect UK Tax?

brexit

“Brexit is like a tax. It is the equivalent to roughly missing out on about one month’s income within four years but then it carries on to 2030,” the former Mexican politician, Angel Gurria, told BBC Radio 4’s Today programme. She went to say “that that tax is going to be continued to be paid by Britons over time.”
UK tax is in fact set by the UK government and is what’s known as domestic legislation, so there is reportedly going to be no change in tax law. However, for 40 years the EU has been one of the biggest influences on our tax system. Therefore, if we left the EU, an immediate change would be unclear, and we would have to wait and see if any tax legislation changed.

In the past, the European Court of Jusitce has declared that UK tax legislation is incompatible with EU law, and required such legislation to be amended. This is because of the UK’s historic tax codes conflicting with modern EU laws. After Brexit, some UK tax legislation would no longer be contrary to EU law, or under scrutiny from the cjeu. However, if the UK were to leave, yet still remain a part of the EU customs union, it would be likely that some UK tax systems would still be influenced by EU law.

With that, however, UK VAT is a mixture of European and Domestic. If there is a Brexit, UK courts will have to decide to what extent they will continue to find European Jurisprudence influencing legislation. Because VAT covers such a large proportion of the UK’s annual tax revenue (21% in 2013/14), it’s highly unlikely that the government would change the system it uses to a brand new UK legislation. However, the UK government would have more flexibility when deciding on the rate of a new sales tax. As well as this, if the UK leave the the EU,  fundamental freedoms and other EU legal principles would have little or no impact on UK tax rules, again providing greater freedom to a future UK government to legislate.

You can contact HMRC if you have any enquiries regarding tax of payments of benefits.

 

VAT Increase Avoided by Solar Industry

The UK solar industry has narrowly missed a 400% VAT increase this year.

Last June the EU Commission claimed that the 5% cap on VAT for solar energy products was illegal, and breached their EU VAT directive. They advised Her Majesty’s Revenue & Customs on an increase to 20% VAT on the renewable energy industry. This included Solar Powered energy and Wind Turbine energy throughout the UK. If this was to happen, it could have potentially squashed the industry in a matter of years, making way for dead-end fossil fuels yet again. The EU Commission also suggested a complete overhaul and reboot of the way VAT is decided in the UK, to fit in with the rest of the EU countries. This would see families or individuals in the UK, who seek to make the swap to renewable solar energy, have to pay up to £1000 per household to install the panels. As well as this, the VAT increase would have seen an enormous 18 000 jobs at risk due to cuts throughout UK Solar companies and installers. Following this statement last year from the EU commission, Her Majesty’s Revenue & Customs released plans last December to rise the percentage of tax on the solar industry to 20% in August 2016. The rise was met with outrage from the public and renewable energy companies combined.

Following this statement from Her Majesty’s Revenue & Customs, George Osbourne’s 2016 budget seemed to avoid the subject almost entirely. The 400% VAT Increasesilence on Solar Power was welcomed by Paul Barwell, the CEO of the Solar Trade Association, who said that “No VAT news is good news on Budget day“. However, it led to a lot of confusion for the UK public, who were then unsure on how much renewable energy would cost them in their future investments. Osbourne discussed a VAT rise on tax for renewable energy generators, as well as subsidies planned for fossil fuels including gas, nuclear energy and diesel. Surely the tax relief for fossil fuels, in itself, would have put a squeeze on many renewable energy options…

In response to this, the government this week has discussed that they will not oppose any plans to amend the increase to the VAT on Solar Energy. Leonie Greene, Head of External Affairs at the Solar Trade Association stated that this amendment would be encouraging for renewable energy. She went on to say that “Increasing VAT on solar to 20% while retaining 5% for grid electricity, gas and oil defies all logic, which is why the STA has consistently taken a strong line on this issue. The Chancellor can and should stand up to Brussels on this – lower VAT on domestic solar is within the guidelines set out in EU law.”  

The amendment to the increase this week has been very much welcomed by the renewable energy industry. With Greene thanking the MP’s of all parties who helped her rally against the VAT hike. She also thanked them for making solar energy a priority, in favor of the dead-end energy resources that seemed to be taking the favor in George Osbourne’s budget this year. The VAT on solar energy will be reviewed in 2017, in which time Solar companies hope to improve savings on power. In the meantime, you can contact the VAT helpline if you have any queries about VAT in the UK.

 

 

 

 

EU Plan Could Question VAT Exemptions

The EU Executive is planning to hold a review of Value Added Tax (VAT) which may call into question the right of Britain to waive sales duty on medicines, food and children’s clothing. The comment was made by Pierre Moscovici who is the economics commissioner. The plan could cause controversy as David Cameron aims to organise a referendum on the membership of Britain in the EU.

VAT Rates

Mr. Moscovici, who is a former finance minister for France said that the EU is looking to overhaul the VAT system. They will be looking at whether to scrap the zero rate policy on certain items in Britain, a policy which outdates the current EU 5% VAT rate. When pressed by the media, he said that no decision has been made yet, but added that zero rate VAT is ‘not the best idea’. Lastly, he said it was ‘far too early’ to discuss any proposals which may emerge as a result of the review.

Within the EU, Britain along with Ireland, is deemed to be ‘unusual’ in the way that it waives VAT. It would be able to veto any proposal to do away with the historical exemptions to the 5% rule, which was established back in the 1990’s. There is an ongoing argument with Brussels over tax and it is said that this could add to pressure on David Cameron from people who wish to quit the EU. There was a campaign late last year to protest against the Government’s inability to waive VAT on womens sanitary items, known as the ‘tampon tax’. Pound

Several people have pushed the European commission to review the VAT system, as a result of certain technological developments. For instance, last year the EU ruled that ebooks wouldn’t be able to benefit from lower VAT charged on their paper equivalents because they were not included in a law which was written before they were invented. States in the EU must levy VAT of at least 15 per cent, but can go as low as 5% for items on a ‘reduced rate’ list.

Mr. Moscovici said that the EU could create a new list of items, or countries could be allowed to create their own. This would give them more freedom to choose which goods can benefit from a lower tax rate. Officials from Britain had no comment on this.

This Friday, David Cameron will be in Brussels for talks with the Commission president, Jean-Claude Juncker. The talks come three weeks before a summit where he hopes to make a deal on an EU reform before holding a referendum.

For more information on VAT rates, as a business owner or customer, contact HMRC to speak with the VAT Helpline.