Greater flexibility and scope for more zero-rates in the VAT system could result from the UK leaving the EU, a tax lawyer has said. However, businesses could also face increased costs.
Ann Humphrey, tax law specialist at Excello Law, emphasises that any changes depend to some extent on the outcome of negotiations between the EU and the UK pursuant to Article 50.
Humphrey says: “One outcome could be the imposition of VAT and customs duties on goods exported from the UK to the EU (and vice versa).
“The European Communities Act 1972 which gives effect to EU law in the UK will need to be repealed. Many EU rules affecting the UK would then lapse, unless temporary provision is made to keep these rules in place until they have been reviewed.
“VAT is likely to remain but the UK VAT system will no longer be constrained by the EU VAT legislation allowing scope for more zero-rates and flexibility as to rates. Over time the UK and EU VAT systems will inevitably diverge and UK businesses dealing with suppliers or customers in EU member states are likely to face increased costs as a result.”
Humphrey says UK companies will no longer benefit from the Parent-Subsidiary Directive and the Merger Directive. “Broadly the Parent-Subsidiary Directive provides that where a parent company in one EU member state receives distributions of profits from a subsidiary company in another member state, the member state of the parent company must not tax the receipt. The Merger Directive is designed to remove fiscal obstacles to cross-border reorganisations.” Neither would it be possible to challenge tax legislation on the basis it is contrary to EU law.
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