How will Brexit affect VAT?

24 June 2016

The people have had their say…and what a say it was. The reasons for people’s votes are probably as numerous and diverse as the doomsday predictions, but the focus must now be on the future. There will be uncertainty over the coming months as the detailed issues are worked out, however, some things, like VAT, will be driven by the cold hard reality of tax law and the supremacy of a democratically elected Parliament.

Initially, nothing will change. However, from the moment the UK officially leaves the EU, UK VAT law will no longer be bound by European VAT law. As the UK Parliament implements and focuses UK VAT law in line with our own priorities as an independent country, we can expect UK VAT law to gradually diverge from the EU model over the next few years. We do not expect any sudden changes, other than perhaps some revisions to our zero and reduced rated activities (removing VAT on domestic gas and electricity has already been mooted), but more a gentle divergence as the UK re-focuses its direction and priorities as a non-EU country trading with countries around the world.

One key point, however, is that our Courts will no longer be bound by European Court decisions whose views on VAT issues could become merely of passing interest in a similar vein to decisions by the Courts in other non-EU countries. The UK Supreme Court will be just that, the ultimate arbiter on VAT disputes with HMRC. One big unknown though is whether previous European Court VAT decisions will lose their binding status.  We suspect that they will continue to be regarded as good law and valuable guidance on interpreting VAT legislation, certainly for the time being whilst things settle down, but the UK Courts will no doubt welcome the opportunity to flex their new-found freedoms to say “that’s all very interesting, but …” when faced with a British VAT dispute over British VAT law.

Undoubtedly, there will be UK businesses who wish they could still rely on EU VAT law over UK law, particularly where the UK legislation had not properly implanted the EU VAT Directive, so the legal profession will no doubt have marvellous fun trying to unpick years of legal precedent and procedures.

It’s going to be an interesting journey with side roads, blind bends and cul-de-sacs along the way.  We have no choice now but to sit tight and come along for the ride.

For further information on any of the above please contact your usual UHY adviser at your nearest location or complete our online contact form.