Brexit no deal - HMRC - New legislation – including legislation on VAT refunds

A Statutory Instrument (SI) was laid on 8th March and published on the gov.uk website at: The VAT (Miscellaneous Amendments, Revocation and Transitional Provisions) (EU Exit) Regulations 2019 (SI 2019/513).

The SI makes consequential amendments to the Value Added Tax Regulations 1995 (SI 1995/2518) (the 1995 Regulations) and to other VAT secondary legislation to reflect amendments made to the Value Added Tax Act 1994 (VATA) by Taxation (Cross-border Trade) Act 2018 (TCTA).

It also makes other amendments that are needed to ensure that the UK’s VAT system works as required, including transitional provisions necessary to provide clarity and legal certainty for movement of goods and supplies of services which straddle EU exit day. The amendments also make changes which are required as a consequence of provisions in other EU exit instruments to ensure that import VAT can still be collected.

With the exception of one provision, it will only come into force in the event that the UK withdraws from the EU without a deal.

More detail on the SI can be found in the Explanatory Memorandum. Substantive changes are summarised below. 

General amendments

Partial Exemption

If the UK leaves the EU without a deal the changes to Regulation 102 included in The Value Added Tax (Input Tax) (Specified Supplies) (EU Exit) (No. 2) Regulations 2019 (SI 2019/408) laid on 1 March will be commenced.

However if the UK leaves the EU with a negotiated agreement we need to ensure that businesses with a partial exemption special method (PESM) agreed before the UK exits the EU interpret the wording of their PESM to ensure that, whilst the UK will be outside of the EU, any VAT incurred in relation to UK to UK supplies of financial services will continue to be treated as relating to exempt supplies.

Therefore we have included a change to Regulation 102 in SI 2019/513 which will avoid businesses needing to apply for, and HMRC approving, a new PESM thereby reducing the admin burden for both business and HMRC. 

Transitional provisions

The SI introduces general transitional provisions for secondary legislation which mirror those introduced for primary legislation in ‘The Taxation (Cross-border Trade) Act 2018 (Value Added Tax Transitional Provisions) (EU Exit) Regulations 2019’. Specific transitional provisions are required in some circumstances (see below) and the SI introduces a power to introduce further specific transitional provisions in a public notice.

EU Refunds

Following the UK’s exit from the EU, EU businesses can still make a claim for refunds of VAT incurred on expenditure in the UK up to and including this date using the existing rules. However any claims submitted after exit day cannot be made using the EU VAT refund electronic system.

The main changes in the transitional provisions are:

  • Claims for refunds of VAT incurred during the periods 1 January to 31 December 2018 and 1 January to exit day which are submitted after exit day would have to be submitted manually.
  • Claims covering the period 1 January 2019 to exit day will be accepted as being for the remainder of the reclaim period.

There is a manual claim form, VAT65A (EU) for EU businesses to submit their claims and also revised guidance in VAT Notice 723A which will further explain the transitional arrangements. Both will be published on GOV.UK

Fulfilment Houses

With the UK’s Exit from the EU, existing rules on UK fulfilment houses will also apply to those who import goods into the UK from the EU. This instrument provides a nine month transitional period for these businesses to give them time to obtain the necessary approval to continue.

Postal Packets

This change to the “parcels scheme” extends the recipient’s liability in cases of non-compliance to allow postal operators to collect import VAT from the recipient on delivery. 

Other

 

Customs Transitional Simplified Procedure (TSP)

This instrument introduces a power to make provisions for the administration of VAT, in circumstance where the Customs Transitional Simplified Procedure is used.

 

The above information was provided by our member Ruth Corkin from the VAT Practitioners Group (UK).

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Disclaimer:  The information contained in the present page is general and does not constitute legal advice. Before taking any decision or action on the above information you should take the appropriate professional advice.