No one wants to talk about VAT. I once turned that to my advantage: early in my career I did a lot of lecturing on VAT precisely because no one else wanted to do so: it paid well as a result.
Now no politician wants to talk VAT. They don't understand it. They should. It's going to cause Brexit mayhem.
VAT is in essence simple when it comes to borders, at least with regard to goods. There is no VAT on exports. There is VAT on imports. That's the principle. It's a bit more difficult when it comes to services. But let's just stick to goods for now. The simplicity is appealing. You just have to know one thing, and that's when the goods have crossed a border.
It has taken decades for the EU to work out how to do this. It's just about got there. Just about, I stress. Between VAT registered traders the arrangement has become relatively straightforward: it's pretty much automated and declarations can be cross-checked, at least in theory. We've finally got most distance selling to non-VAT registered customers sorted too, but only recently. And notorious abuses, such as the Channel Islands abuse of what is called low-value consignment relief have been largely eliminated. I am not saying fraud has ended: that would be wildly optimistic. But the abuse of old, where the same goods crossed borders time and time again until eventually a fraudulent claim for tax was made with no matching declaration of liability being made has been curtailed, at the very least. You have to be a somewhat more sophisticated now.
And then we get to Brexit. And the arrangements that exist within Europe to make sure that goods can be traced across borders precisely to make sure that this fraud - which cost billions a year to the UK - will be denied to the UK. They will have to be. The system depends upon the exchange of sensitive data. And sensitive data requires protection within and between states. Which means that the court has to be involved. And in the case of VAT that is the European Court of Justice, whose jurisdiction the UK is now refusing to accept. And that means we will be outside the VAT system for Europe.
The consequences are enormous. They are grim for our exporters: they will suffer a cost disadvantage as every export from the UK will be an import into Europe. That will mean that every single one will have to be processed upon arrival somewhere on the continent, and VAT will have to be paid. That's a significant processing cost, and a cash flow disadvantage. The VAT does not act like a tariff; it would have eventually been payable anyway, in some place by someone, but the processing charge is a tariff. And cash flow is always an issue.
For importers the situation is as difficult. According to the FT, Heathrow alone handles more than 2 million parcels a day. A majority of these come from the EU: they just flow through the system right now. But that will not be the case after Brexit. Every one will need VAT paid. And a processing charge will be due: that's usually £8 on delivery, payable to the Royal Mail, on top of the VAT owing, at present.
It is pointless to pretend that the free flow of goods will not be disrupted in this case: it will be. We do not have the infrastructure to handle this at present. Nor have many businesses got the margin to handle distance selling in these situations: for many small UK businesses this will be deeply prejudicial: import and export will be beyond their reach. And let's not pretend that this is good news: we simply cannot make everything ourselves. We will be worse off.
In that case the suggestion made in the FT yesterday that the UK is looking at staying in the European VAT system is good news. It will mean accepting ECJ rulings in this area, but we remain subject international courts on vast numbers of issues. And it will mean maintaining an EU compliant VAT system, but given the length of time it has taken to make that system work, and it is now better than ever, that make sense.
At least, it most certainly does when the alternative is the creation of the most massive barrier to large parts of our trade.
On Brexit there is no debate required on VAT: we have to stay in. Quite literally, nothing else makes sense.
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Are there any countries ( e.g. VC, And, Mon, Nor, Lie, Swi, Ice etc ) which are in Europe, not in the EU, but also not in the European VAT system?
It appears you know your own answer
And you therefore also know they all have borders
But none have left the EU to get to that point
You lectured and told people it was a “principle” that there was no VAT on exports?
Oh dear. Astonishing that someone who lectured on VAT doesn’t even know the rules.
If your customer is in the EU and is not VAT registered you charge VAT in the usual way, taking into account the distance selling threshold of the country you are exporting to.
That’s hardly going to be a outlying exception for most exporting businesses.
Did you keep a record of those you lectured? You should do them the professional courtesy of getting in touch and putting them right.
Please do not be fatuous: I was summarising and did refer to distance selling rules
“There is no VAT on exports. There is VAT on imports. That’s the principle.”
Those are your exact words. And they are wrong. There is VAT on exports to non-VAT registered EU customers. And a business selling a one-off parcel of goods to, say, France for a few hundred pounds would charge VAT at the UK rate and distance selling thresholds would even factor so don’t try to pretend your article is anything other than factually incorrect.
No doubt you’ll accuse me of being pedantic. Which is odd. Would you have advised one of your clients to accuse HMRC of being pedantic when they fined them for following your advice and getting their VAT wrong?
How is it being fatuous to point that out?
It is being fat headed not to have the humility to admit when you have made a mistake.
Except I haven’t….
As I previously noted
And as Richard Allen and others have noted
You should mention this to HMRC. They seem to think;
“If you sell goods or services to someone who is not VAT registered in another EU country, you must charge VAT in the normal way, just as you would for a UK customer.”
So who should we believe, you or HMRC?
I covered the point quite clearly
Now stop being a silly pedant when nothing I said conflicted with that, not least because I specifically referred to distance selling arrangements
If it’s an “export” then by definition it’s to outside the single market.
A sale to an EU customer, VAT registered or not, is not an export.
The point Richard makes is correct. Goods entering a VAT/GST regime area, whether that be the single market or the UK (post brexit) would have to be subject to VAT. Otherwise businesses located in that area are at a disadvantage. (Ignoring any tariffs, but the same principle applies)
It’s the tax that dare not speak its name
It’s a highly regressive tax and Brexit would be the chance to scrap it here and replace with a consumption (of natural resources) tax. But that doesn’t get rid of the problem which Richard draws attention to.
“If your customer is in the EU and is not VAT registered you charge VAT in the usual way, taking into account the distance selling threshold of the country you are exporting to” Not by the time we leave the EU. Rules change.
Indeed
Paul Simons Richard is correct. There is no VAT on exports. What you refer to is movements.
The EU has in fact proposed a different approach to combat the huge fraud issue, which will see exports being taxed, with the VAT being collected by a mechanism that then pays the VAT to the relevant member state.
https://ec.europa.eu/taxation_customs/sites/taxation/files/25_05_2018_proposal_on_detailed_technical_measures_for_the_operation_of_the_definitive_vat_system_en.pdf
This obviously arose after you gamely ventured into the world of VAT advice.
Please do feel free to ask an actual VAT specialist for technical advice.
And it has not happened yet
Which makes you look the fool
Richard made that point in his distance selling comment. Who are these VAT braggers ?
Know alls
Who don’t know all
Richard (Allen) – 30 years experience in VAT in HMRC and private sector. That OK?
And you still get it wrong
As HMRC did time after time after time on LVCR
As Richard will recount
Richard (Murphy) – what have I said that is wrong? I said the EU has proposed a different VAT approach. They have. I sent you a link. There is very little wriggle room there for error.
Thoughts?
That you’re wasting my time
In the early 90’s when Intrastat was introduced we in HM Customs and Excise made educational visits to businesses to explain how much easier inter EU trade was going to be and unusually for VAT officers we were welcomed with open arms. Can a supporter of Brexit explain how having to pay import VAT and have your cash flow hit until you can reclaim it on your next VAT return is lifting the burden of bureaucracy for business that they claim the EU imposes ? They promised we would be “free” if we voted to leave the EU – so how does having to complete Customs declarations and pay VAT constitute freedom ?
No one will rise to that one
Because they couldn’t win
Nope…VAT is an even more circular argument than the Irish border
Just wait until ‘the people’ start paying VAT and handling charges on purchases from the EU ….
Richard,
You need to apologise. I pointed out the EU had PROPOSED a new approach and most people think it will happen. I am curious why your modus operandi in dealing with people online is to attack anyone who you perceive is criticising you. You wouldn’t dare say I am a fool to my face, but feel it is OK to do so from your computer 43 miles away from me. This is the reason I avoid Twitter etc now. Too many narcissists.
If you’d prefer to carry on spouting misinformation without the benefit of some expert help, fine, I will not darken your door.
But to try to prove me wrong you quoted something that may happen
With respect, that’s like saying Ipswich will be promoted to the Premier League next year: both might just be wishful thinking
So I will say that you’re wrong
And your argument style is to quote speculation as current fact
I call that foolish
What do you describe it as?
I merely said that going on about how great the existing system is might not help if the UK stayed in the single market or indeed reversed Brexit. That’s adding to the debate. I said it was a proposal.
Where did I say that this was a fact?
But the fact is that this is not a country isolation system: you will note it is an EU wide system. And it is not a border check system. It is a cross charging system
In other words, all I said stands re being outside the system
I am sorry, but you really do seem to have missed the point
The EU will be implementing the new distance selling VATMOSS arrangements (I was involved in its early stages). The whole point of the FT article is what will the UK do…will the UK follow suit or not. There was a follow-up letter to the article highlighting the new EU arrangements (the original article did not go into any detail). https://www.ft.com/content/a5393064-64d9-11e8-a39d-4df188287fff
“In other words, all I said stands re being outside the system
I am sorry, but you really do seem to have missed the point”
Yes makes no difference to the point you made…if anything the fact the EU system is due to improve further and we are leaving makes it even more ridiculous. At present, the UK is seeking alignment with a system that will be redundant by 2022 and to implement the new arrangements the UK should be starting work on it now rather than pissing away £20bn (*and the rest) on Max Fac
” Richard (Allen) — 30 years experience in VAT in HMRC and private sector. That OK? ” What is this top trumps.
I give up. Narcissists…
No
We engage with the argument
You missed it altogether and used a red herring to offer inappropriate abuse instead