Article 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.”