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Consequences

VAT

The VAT System Directive and other directives on the European VAT system would no longer be binding on the UK post-Brexit. The relevant EU directives have, however, been transposed into UK domestic law. These laws would continue to apply after Brexit.

However, after Brexit the UK is free to introduce its own (new) consumption tax system to replace the European VAT system if it wishes.

We expect the UK to retain the existing system inside its own borders initially, without any major modifications. There are several indications, however, that a separate “UK VAT system” will depart significantly from the European system in the medium term after Brexit.

Companies should monitor events carefully in order not to miss any specific developments and associated need for action in the UK (e.g. extensions to tax exemptions or abolition of exemptions). European case law and legislation can no longer be regarded as a reliable guide post-Brexit.

Intra-community movement of goods and services: all movement of goods and (in some cases) services to and from the UK would need to be based on substantially different rules following Brexit. The consequences will vary depending on the individual company; in the case of banks that provide services to UK customers, for instance, Brexit could lead to an increased entitlement to deduct input tax, while other companies could face increased administrative effort when exporting to the UK.

Companies should consider the specific impact of Brexit on their supply and service relationships in order to be able to plan and implement any necessary measures and reconfigure their processes in good time. The right timing is likely to represent a particular challenge for businesses here. For the moment, the focus should be on possible preventive measures or fundamental questions around structuring. Making the actual changes (taking due account of any transitional rules) will then become the main challenge as Brexit approaches.