UK retailers will be required to continue collecting and remitting VAT on European cross-border transactions after Brexit. To not do so would be to engage in tax evasion. The planned reforms to the MOSS system achieved by the EU VAT Action campaign, including a low earnings threshold and simplified reporting requirements, are contingent on the UK being a part of the EU. Post-Brexit UK retailers therefore face compliance requirements from a system which they no longer have a say in.
These issues concern the VAT DSM package announced on 1 December 2016.
The VAT issues discussed here are part of the Digital Single Market strategy.
Progress and developments:
In January 2017 the European Scrutiny Committee of the House of Commons reviewed Government progress on implementing the proposed changes, especially where Brexit is concerned.
Their response here is unlike anything else in the full March 2017 scrutiny report.
The Committee notes that “these proposals were foreshadowed in the Commission’s VAT Action Plan “Towards a single EU VAT area—Time to decide”. We recommended that this document should be debated in European Committee B early last year.With a complete disregard for the scrutiny processes of the House the Government has failed to yet schedule this debate on major changes to the VAT system. There will have to be a post Brexit VAT regime in the UK; the extent to which it might match the EU regime remains an important question.
As long ago as April 2016 we recommended that [the proposed reforms] be debated in European Committee B. But disgracefully the Government has yet to schedule this debate.”
These comments are both a testament to the work of the EU VAT Action campaign and a damning indictment of a Government using Brexit as an excuse to ignore ongoing legislative matters which happen to involve the European Union.
The Commitee has requested further clarification from Government on “how much of these proposals would it wish to import into the UK’s post-Brexit VAT regime and about what form of “fiscal frontier” there might be between the EU’s VAT regime and that of the UK.”. They have asked for a response from Government by 9 May.
The bombshells continue. The 22 November meeting of the Committee, which responded to Goverment’s stated intentions for the 7 December ECOFIN meeting, noted that “We were in any event somewhat surprised by the Government’s support for the legal texts, given that it does not appear that the concerns it has raised consistently since the proposals were tabled last year have been addressed. “
This is a diplomatic way of saying that Government is so overwhelmed by Brexit it is no longer doing its job.
Despite the success of the 7 December ECOFIN meeting, in which the proposed VATMOSS reforms were approved, the European Scrutiny Committee is remaining focused on the larger picture. Their 24 January 2018 meeting noted, somewhat astonishingly, that the fundamental issues about the UK’s future within the MOSS system after Brexit do not just remain unanswered: the questions themselves have not been asked.
The European Memoranda on the MOSS reforms are worth studying in depth.
Also on the subject of VAT, in December 2017 the European Scrutiny Committee looked at the implications of the single European VAT area on, amongst other things, the Irish border. In December the Committee also touched on the Communication on a Fair and Efficient Tax System in the European Union for the Digital Single Market, asking Government to clarify “what ways will leaving the European Union affect the UK’s ability to tackle the challenges the digital economy presents in terms of corporate taxation? Will it be easier for the Government, outside the EU, to oblige digital businesses that currently route economic activity through other Single Market tax jurisdictions (e.g. Ireland) to have a permanent establishment in the UK and to pay larger corporate tax contributions, or does the EU’s limited competence in this policy area mean that the impact of a shift to third-country status will be limited?”
In April 2018 the ESC published a report reiterating its requests for Government to clarify its post-Brexit intentions on VAT:
The report included concerns about the surival of the proposed small business exemptions for VATMOSS.