This is part of the EU Fact File
Verdict: OUT – because EU dictates the use of minimum VAT over national sovereignty and that EU VAT handling is more complicated than non-EU VAT handling when the EU market is reducing and the non-EU market increasingly has to be accommodated for.
VAT and EU:
This is what EU dictates about VAT 5:
Under EU law, the standard rate of VAT in any EU state cannot be lower than 15%. Each state may have up to two reduced rates of at least 5% for a restricted list of goods and services. The European Council must approve any temporary reduction of VAT in the public interest.
As the UK joined the EU in 1973 we get 6:
Value Added Tax, or VAT, was introduced in the UK in 1973, replacing purchase tax. Originally, there was a single rate of 10%, but this has changed dramatically over the past two decades.
So the EU essentially gave us VAT – thank you!
How to apply VAT:
- The UK currently needs to apply VAT for Domestic, Inside EU and Outside EU.
- The UK after Brexit needs to apply VAT for Domestic and Outside EU.
Domestic – same rules if UK is inside or outside the EU
- Goods and services are charged normal VAT:
- Standard rate: 20%
- Reduced: 5% (like clothes)
- Zero: 0% (like training)
Inside EU – You may hear there is no VAT in the EU but here we go:
- Business-to-business (B2B) – only applicable if you know the counterpart VAT number:
- European Sales Listing (ESL)3: List of all sales by country, customer and amount
- Intrastat2: Complex list of goods sales by type of goods (commodity codes) when total sales is above £250,000 or import is above £1.5 million
- Rate: 0%
- Export: Goods and services requires ESL and goods may require Intrastat
- Import: Goods may require Intrastat. Services require reverse charge VAT rate. A bit complex but if a UK company provides services in Denmark the Danish company would record rate 25% output VAT and 25% input VAT, essentially netting to zero but only if offset against other sales
- Business-to-consumer(B2C) – or to business without or unknown VAT number:
- Export: Rate 20%
- Import: Rate 20%
- Electronic services4 like phone apps or electronic publications: Rate of the country of the customer (so you need to know VAT rates of 28 countries thanks to the EU rules!)
Outside EU – this would also apply to the EU is UK left the EU:
- Goods export:
- Export papers are needed (not required between EFTA and EU countries)
- Rate: 0%
- Services export:
- Nothing needed
- Rate: 0%
- Goods import:
- Rate: 20% charged by import agent. Delays can occur here while being checked
- Services import:
- Rate: reverse charge of 20% output VAT and 20% input VAT, essentially netting to zero but only if offset against other sales
- Electronic services4 like phone apps or electronic publications: Rate of the country of the customer (so you need to know VAT rates of 28 countries that to the EU rules!)
Questions to be asked:
- ESL and Intrastat should not be needed if the EU really is regarded as one big country? Especially the digital services VAT proves this is not the case…
- SME would be better off not having to do all the statistics? Especially digital services are impeded
- As EU export is dwindling “Outside EU” will become dominant process and “Inside EU” will just add complexity if the UK is inside the EU?
- Has EU not made it harder for everybody to sell digital services in the EU, which may actually deter small business selling this in the EU?
Good Articles (subscripted)
- VAT: https://en.wikipedia.org/wiki/European_Union_value_added_tax
- VAT – intrastat: https://www.gov.uk/guidance/intrastat-duty-to-report-statistics
- VAT – ESL: https://www.gov.uk/guidance/vat-how-to-report-your-eu-sales
- VAT – digital services: https://www.gov.uk/government/publications/vat-supplying-digital-services-to-private-consumers/vat-businesses-supplying-digital-services-to-private-consumers
- VAT: https://en.wikipedia.org/wiki/Value-added_tax_(United_Kingdom)
- VAT: http://www.which.co.uk/money/tax/guides/uk-taxes-compared/how-vat-rates-have-changed/
- 9/3: Created VAT section
- 10/3: Created separate VAT page