The UK could remain within the European VAT area after leaving the EU, according to the Financial Times. The VAT area has received little attention in the media and is not connected with the customs union or single market.

The EU VAT area is a zone consisting of territory of all member states of the EU and certain other countries which follow the EU’s rules on VAT.

The FT reports that the Treasury is taking an “active role” in designing new EU VAT regulations for the next decade, leading to speculation that it is planning for the UK to remain inside the area, even after the Brexit implementation period ends in December 2020.

Correspondence seen by the newspaper from Financial Secretary to the Treasury, Mel Stride, to Dover MP Charlie Elphicke, says: “The government aims to keep VAT processes after EU exit as close as possible to what they are now.”

What is the effect of staying in the EU VAT area?

The advantage for the UK in staying within the EU VAT area is that it would not be necessary to collect VAT at the border (including any online sales), thus retaining existing VAT arrangements.

However, by remaining inside the area, the UK would still have to comply with EU rules overseen by the European Court of Justice.

It is not yet clear whether the EU would allow the UK to stay within the EU VAT area in order to allow frictionless trade, but if the UK does leave it would need to have put in place the necessary infrastructure to impose VAT at borders, or accept a loss of control of VAT revenue.

In a separate move, the government has published its proposal for a temporary ‘backstop’ customs arrangement between the UK and EU.

If you would like to discuss the implications for your business of the UK leaving the EU VAT area, please contact Wendy Andrews.


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