I did a quick explainer for @prospect_uk on how #Brexit may affect #VAT, both domestically and in relation to EU-UK trade. Quick thread on some of the key points: prospectmagazine.co.uk/economics-and-…
1/ The UK, like all other EU member states, currently is part of the common EU VAT area. While the EU does not prescribe exact VAT rates, it put in place certain guidelines, e.g. a minimum standard rate of 15%, or limits on granting of reduced rates and exemptions.
2/ Leaving the EU presumably means leaving its VAT area (Monaco currently only non-EU state that is a member). This would have a range of serious implications, both positive and negative.
(Though some trade experts expect EU would offer UK continued membership, if asked.)
(Though some trade experts expect EU would offer UK continued membership, if asked.)
3/ On most basic level, leaving would mean UK completely free in setting own VAT rates. There has been heavy campaigning to use this to offer exemptions or reduced rates on e.g. tampons or domestic fuel. (Though some of this may become possible also under revised EU rules).
4/ It would also add spice to devolution debate. @reformscotland already proposed devolving VAT powers to #Holyrood after Brexit. This would be impossible under EU rules, which stipulate need for universal rates across a member state's territory. reformscotland.com/2018/04/the-va…
5/ But these freedoms would come at a cost, particularly for businesses. Currently there is no VAT levied on intra-EU trade - once UK leaves EU VAT area however, businesses would be forced to pay upfront VAT on their EU imports. This would create serious cash flow & time burdens.
6/ Businesses would also need to register for VAT in EU states they trade with (both in goods & services), a burden esp for SMEs. Groups such as @the_brc have already come up with ideas to alleviate fallout, though gov still seems slow in taking this up parliament.uk/documents/comm…
7) VAT also touches upon currently most delicate question of Brexit negotiations: the Irish border. As HoC scrutiny committee warns, the need for VAT checks on border would make attaining invisible border on island of Ireland even more difficult. bbc.co.uk/news/uk-northe…
8/ As @adamfleming points out today, gov still undecided on how it wants to do this. As with most things Brexit, its a delicate trade-off between keeping trade as frictionless as possible and regaining full decision-making powers.
Much will also depend on wider post-Brexit relationship. Should UK end up staying in SM and CU, remaining in EU VAT area seems likely option. But should it leave both, keeping EU VAT rules in place seems rather unlikely. /ENDS prospectmagazine.co.uk/economics-and-…
