March 5 , 2019

Hard Brexit and VAT

As we are sure most of you have heard, the United Kingdom, (the UK) is about to leave the European Union. This will substantially affect all areas of the trade between the countries, as well as from other parts of the world, for example trade from the US to the UK and EU. This will also affect the VAT. At this moment there is no agreement in place for the continuing relationship between the EU countries and the UK, hence there is a risk for a “hard Brexit” in the end of March, 2019. Everyone hopes that this will not be the case as it would lead to chaos, and very big problems for the trade. We wanted to bring this to your attention in case you trade or plan to trade in the UK.

If there is a “hard Brexit” in the end of March it means:

The UK VAT system will still be in place. There will still be VAT in the UK, and when a company imports to and sell within the UK, there will be no changes.

However, there will be some specific changes to the VAT rules and procedures that apply to transactions between the UK and EU countries. The UK VAT system will no longer be part of the EU VAT system, and the UK will be an independent country in terms of VAT, more in the same way as Norway and Switzerland are today in relation to the EU.

This means for example that goods that are sold and shipped from the UK to an EU country will be an export out of the UK, and an import into the EU country. This means that duty may be assessed perhaps, and also import VAT has to be paid to the EU customs upon import.

When the EU country sells to the UK, this will be an export from the EU, and an import to the UK with possible duty, and with 20% import VAT.

It is expected that this will be very chaotic for a while, since neither the EU nor the UK is set up for the massive amount of shipments between the countries. It is not clear how they will be able to process all these imports and exports in such a short time.

If your company is registered for VAT in the UK, or plan to be, and this involves shipments and sales to other EU countries, please do look into what this means for you. Please contact our office and we can assist you with this review.

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