New for Investment Planners: Will Brexit See a Rise in VAT?

Britain’s decision to leave the EU on June 23rd has potentially huge ramifications, both politically and economically. Since the decision, Britain has gained a new Prime Minister, but uncertainty remains on when the UK will actually leave the EU, and what impact this will have on their international trade deals.

What is VAT?

One area where many Brits are concerned is VAT. Currently at 20%, VAT stands for Value Added Tax and is applied to all goods that are not deemed as ‘essential’. As a result, a small change in VAT can add a large amount of money to the value of a family’s weekly shop.

Why Will this be Affected by Brexit?

Now, Withers Worldwide are reporting that Brexit may have large ramifications on VAT, with the recent decision expected to have legal consequences for VAT. This is because, unless an alternative agreement is negotiated with the EU, both imports and exports to and from the UK will become liable to VAT and duties. This means that the UK will lose its preferential terms of export. This is because this only exists between EU and non-EU countries.

VAT is currently responsible for 18% of all UK tax revenue, and this means that it is highly unlikely that the UK will abolish the VAT system in its entirety. However, with Brexit looking set to increase compliance obligations for companies both inside and outside the EU, it’s likely that the system may need a complete overhaul.

Will the Rate Rise?

When the UK officially leaves the European Union, it will have no obligation to maintain a VAT system. However, as we said, it provides almost a fifth of the UK’s tax revenue, and the Treasury would find this almost impossible to replace.

However, if the UK ran its own version of VAT, then it’s also important to note that decisions made on VAT by the European Court would no longer be binding in the UK, as the UK’s VAT rate would run separately to the EU’s.

At present, EU law states that the minimum rate of VAT is 15%, but this would no longer apply to the UK. Theoretically, although it’s highly unlikely, the UK’s rate could fall below this level.

Instead, some believe that the VAT rate will rise instead, possibly as high as 25%. However, until the UK begins to negotiate an exit of the EU, it’s impossible to know for certain, so watch this space.

from Finance Girl http://www.financegirl.co.uk/new-for-investment-planners-will-brexit-see-a-rise-in-vat/