Brexit - indirect tax

With experts stating that businesses need to plan for Brexit, the question on the lips of many may be ‘how and when?’  Whilst it is getting a bit clearer we have nothing set in stone.

What does being part of the EU mean from an indirect tax perspective?

We currently operate in the single market.  This means that goods bought from another EU member state do not have any customs duty levied when the goods enter the UK and also that the UK adheres to EU set rates of duty (shared customs duty tariffs) for imports to the EU.  Additionally, VAT is self assessed (see boxes 2 and box 4 of the VAT return).  So, other than the obligation to file EC Sales Lists and Intrastat returns, it is currently quite straightforward from an administrative point of view.  

What could happen when we leave the EU?

It was confirmed by the Prime Minister in her speech in January 2017 that we will not be remaining in the single market once we leave the EU but that our agreement will seek the freest possible trade in goods and services between the UK and the EU's member states.  Mrs May also stated that she does not want the UK to be bound by the shared customs duty tariffs that we currently have with the EU and instead, the UK would be striking its own trade agreements.

As a result of leaving the single market, the UK would not be part of the EU VAT arena.  This means that rather than VAT being self assessed in the VAT return, it is likely it would be due at the time of importation.  For most businesses, this VAT will still be reclaimable (unlike customs duty) but in order to do this, currently businesses must have an EORI (Economic Operator Registration and Identification) number, which needs to be quoted at the time of importation and is used to generate an import VAT certificate (C79).  It is highly likely that such an import based approach would be adopted post EU exit.

Import VAT can only be reclaimed when a business obtains and retains its C79. HMRC advise that the C79 should be received by 24th of the following month (relating to imports in the previous month), this has the potential to have a negative impact on the cash flow of a business.  If this is likely to be an issue, a business can consider applying for a deferment account, which allows payment of import VAT (and duty if applicable) to be deferred for an average of 30 days.

What other implications are there?

UK VAT law is set in The Value Added Tax Act 1994.  However, UK VAT law is currently governed by the EU VAT Directive, so this would no longer apply (albeit various elements could be enshrined in revised UK legislation).   

This could result in the UK being free from the constraints of EU law but it could also mean that existing UK case law (that has been decided on EU principles) could be overturned or disregarded and this could change the case law that many UK businesses rely on.


As the intention of the UK is to negotiate a free trade agreement with the EU, businesses should not have a duty cost when bringing goods into the UK from the EU.  Additionally, negotiating UK specific agreements could change the import duty paid on imports from other countries but we do not yet know whether this will lead to an increase or decrease in duty rates (as the UK may seek to adopt lower rates to facilitate import and export).  Regardless, there will likely be new indirect tax obligations that businesses will need to prepare for.    

We will keep you updated as and when the position becomes clearer. 

For further information please contact Alison Birch.

Registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales and authorised and regulated by the Financial Conduct Authority for investment business