‘Specify VAT if UK crashes out of EU, or delay MTD’

Existing guidance from the government on the position of VAT for small companies if there is no-deal on Brexit is lax enough to justify delaying Making Tax Digital.

Issuing this unflattering assessment, a chartered tax body suggested the most pressing problem to be the UK’s potential EU ‘crash-out’ date falling just as MTD begins.

As well as this “clash,” the government should address that firms in the EU may no longer be able to obtain VAT refunds from EU nations using the current single-market mechanism, said the body, the Association of Chartered Certified Accountants.

Under no deal, the association fears these member states would be categorised as ‘third countries’ and so may keep from refunding VAT to the UK, as is the norm for them with firms in the US among other ‘third countries.’

But a ‘no-deal’ Brexit that classified  the UK as a ‘third country’ would require the technology  systems of UK companies to be changed, effectively to re-categorise them, which would impose “additional complexity” on the VAT system.

The ACCA’s Chas Roy-Chowdhury added: “This further complication to VAT submission would clash dramatically with the government’s new online tax system, due to come into effect just three days later on April 1st.

“To prevent this clash creating disorganisation for small business owners, [we] are calling for the government to be more precise than their current guidance released back in August and produce specific scenario plans for the various potential outcomes of a no-deal Brexit on VAT.”

Readers of ContractorUK are among those who have suggested the August guidance, published by HMRC, does not give many of the answers that VAT-registered firms need in the event of ‘no-deal.’

That guidance states: “If the UK leaves the EU on 29 March 2019 without a deal, the government’s aim will be to keep VAT procedures as close as possible to what they are now. This will provide continuity and certainty for businesses.

“However, if the UK leaves the EU with no agreement, then there will be some specific changes to the VAT rules and procedures that apply to transactions between the UK and EU member states.”

Late last year, the government was urged to delay the roll out of MTD by one year, in a report by the House of Lords Economic Affairs Committee.

IPSE, the contractor trade body, supported the Lords’ headline recommendation – and now the ACCA supports it too, assuming the Revenue’s VAT guidance does not improve.

Mr Roy-Chowdhury said: “We are stating that the government must be specific with the various outcomes of a no-deal and provide detailed scenario planning guidelines for businesses to follow.

“A failure to do so would, indeed, require a delay to the introduction of the new online tax system until businesses have had time to address issues relating to a no deal Brexit.”