VAT Post Brexit - Smooth sailing or stormy waters?

Just 12 months ago in the UK, Boris Johnson was waving a Manx kipper above his head in a ‘Brexit’ bid to win the Tory leadership race. Whether or not this played a part in his victory or the subsequent election result, the Isle of Man like the UK is now having to prepare for the consequences.

Just 12 months ago in the UK, Boris Johnson was waving a Manx kipper above his head in a ‘Brexit’ bid to win the Tory leadership race. Whether or not this played a part in his victory or the subsequent election result, the Isle of Man like the UK is now having to prepare for the consequences.

Under the terms of the Withdrawal Agreement (“WA”), the UK will have an exit transition period until 31st December 2020 and until this time, the UK will remain within the EU regime. It is only five months away, but it is still possible that a customs deal might be reached with the EU, however businesses cannot be complacent. Specifically:

  • Without a deal at the end of the transitional period, from 1st January 2021 UK and IOM businesses will need to make customs declarations to import and export goods to/from the EU;
  • There might be an end to zero rated, intra community trade whereby transfers of goods would become either exports or imports, with their own accompanying VAT rate;
  • Cash flow could be impacted for businesses looking to import goods from the EU;
  • It is possible, albeit unlikely that the UK could reduce its VAT rate following its departure. (The EU minimum required rate of 15% would no longer apply);
  • EU VAT refunds may no longer be available online, using instead a more time consuming paper based system (per the 13th directive);
  • The EU Mini One Stop Shop (“MOSS”) scheme for digital services will no longer be available;
  • The EU provisions to save other businesses from requiring multiple VAT registrations (such as Distancing or Triangulation) will also no longer be eligible for UK/IOM businesses;
  • The reverse charge mechanism will still be applicable for businesses charging VAT on services, but this may also be subject to change if the UK were to change the use and enjoyment rules.

What can businesses do now?

To help with preparation businesses should apply for an Economic Operator Registration and Identification number (EORI) which in the case of Isle of Man businesses can be found here. (VAT groups with separate legal entities may require an EORI for each individual entity that needs to export or import goods.)

Businesses should also review all contractual arrangements with EU businesses, as depending on the agreement they may also be required to register for VAT in each customer/suppliers country.

Businesses should consider cash flow in anticipation of VAT needing to be paid up front for EU imports. It is possible additional tariffs and administration costs may also be incurred due to the additional work involved in processing these transfers.

Lastly, due to their complexity businesses may wish to consider appointing VAT agents to deal with customs import declarations in the relevant jurisdictions.

Whatever the outcome on 1st January 2021, the Isle of Man has again shown that it is resilient and adaptable to change. At Peregrine we have access to a network of professional advisors throughout the EU to address and assist our clients with their business circumstances.

For further information regarding VAT and the implications of Brexit please contact Jamie McKenna at Jamie.McKenna@peregrine.co.im.

Peregrine Corporate Services Limited is licensed by the Isle of Man Financial Services Authority.

Sign up to our newsletter