HMRC has issued guidance to inform UK businesses of the implications for VAT rules, where goods and services are traded between the UK and EU member states, if the UK leaves the EU on 29 March 2019 with no agreement.
It is important to appreciate that this is contingency planning for a scenario that the UK government does not expect to happen. It also notes that there will be no change to the VAT rules for most UK businesses.
It is anticipated that the distance selling regime will be replaced by an extension of the MOSS system throughout the EU. Brexit may bring an earlier end to these regimes for UK businesses selling into the EU, as they will no longer be eligible to use the distance selling arrangements and HMRC will no longer be able to operate the Mini One Stop Shop (MOSS).
Consequently, UK businesses will have to treat the sale of goods to other EU countries as zero-rated exports, in the same way as to any other country worldwide. Supplies of electronic services to consumers in other EU countries will require registration for the non-union MOSS scheme in one of the remaining countries, or will otherwise require VAT registration in each and every country where a domestic customer is located.
Similarly, EU suppliers currently using the distance selling regime for sales into the UK will have to account for UK VAT, instead of the overseas VAT that is currently charged. This may increase prices in some circumstances.
For parcels valued up to and including £135, a technology-based solution will allow VAT to be collected from the overseas business selling the goods into the UK. Overseas businesses will charge VAT at the point of purchase and will be expected to register with an HMRC digital service and account for VAT due. On goods worth more than £135 sent as parcels, VAT will continue to be collected from UK recipients in line with current procedures for parcels from non-EU countries.
UK business will no longer have access to the EU VAT refund system, but will be able to claim refunds of VAT from EU member states by using the existing processes for non-EU businesses. This process varies across the EU and businesses will need to make themselves aware of the processes in the individual countries where they incur costs and want to claim a refund.