How VAT and Trade Would Look Like After the Brexit Deal
Even though domestic VAT will reportedly be the same after the UK leaves the EU, the same cannot be said for businesses – especially for those that trade/ import/ export goods.
As you know, the European Union provides its member states with free movement of goods – as well as with other benefits that lower the VAT rate overall for those that trade within the European Union.
Naturally, once the UK leaves the EU, it will no longer enjoy any of those benefits and will be treated as a third country – namely, as a non-EU country.
Let’s see how the VAT and trade of the UK would look after the Brexit deal.
The Outcomes of Brexit
First of all, we have to take into account two scenarios – namely Brexit with a withdrawal agreement and Brexit without a deal.
- Withdrawal Agreement – this implies that the UK, once it officially exits the EU, will enter a transition period of up to two years in which all of the EU regulations will still be in place – with a couple of minor changes. This is meant to give the UK enough time to find alternatives for the things that will go away once the EU support ends.
- No-Deal Brexit – this is what most people expect, especially given the recent turn of events, and implies the UK simply leaving the EU without any deals or anything similar. In such a case, the UK will lose all of its EU benefits immediately – including those related to VAT and trade.
VAT After Brexit
The VAT applied by the UK internally is currently at 20%, after it has been increased from 15% several years ago. On this topic, UK representatives have stated that the government doesn’t plan to lower the VAT or to make any significant changes to it.
Basically, this means that, after the UK leaves the EU, a lot of companies and businesses will take a serious hit to their cash flow, due to the new costs of importing goods from the EU.
On top of that, there’s also a potential pressure on prices that will be felt mainly by the country’s ordinary shoppers.
Trade After Brexit
Since the UK will no longer enjoy the free movement of goods, it will have to adopt new procedures in terms of importing from and exporting to the European Union.
For example, when it comes to trade, businesses will have to take into account:
- New EORI numbers, depending on whether they import or export goods.
- Commodity codes that they will be obligated to use during import/export.
- Customs declarations that they will have to fill – these include the value and country of origin of the goods.
- Customs tariffs – temporary custom tariffs will apply to all EU imports to the UK, for a period of up to 12 months.
The Bottom Line
In short, the UK will be treated entirely as a non-EU member – either in a couple of months or after a couple of years. No matter the result, the impact on VAT and trade will be felt sooner or later.
As a non-EU member, the UK will have to deal with VAT and trade as any other country that is not part of the EU – namely, without the help of triangulation, of the Single Market, of the EU customs, and of the free movement of goods.
The main concern is that potentially higher VAT, as well as reported higher energy prices, will impact not only businesses but ordinary consumers as well!