Tax and Insolvency Litigation Solicitor

VAT and Customs duty in a post Brexit UK

Posted In: Tax Disputes

The British public will shortly decide whether the future of this nation lies outside or within the European Unuion (“EU”).

To those people who endorsed the UK entry to the EEC in the 1975 referendum the whole essence of Europe (whether in its original form of the EEC and later the EU) was all about creating a “common market” with a common customs policy and rates.

The question must therefore be asked:  what are the taxation consequences of the UK’s exit from the EU, commonly referred to as “Brexit”?

There may be a number of relevant factors at play: (a) the nature of the UK’s future relationship with the UE, and (b) customs union law will cease to apply.  

Further ahead in time, the UK would not be bound by EU Directives which have been enacted into domestic law and would have greater freedom to legislate in those areas free from the constraints of EU laws.

Nevertheless, a Brexit would have no impact on the UK’s extensive double tax treaty network, which is not based on EU Membership. The UK would, therefore, still benefit from and be bound by the double tax treaties already in force.

Impact on VAT law

EU law is the father and underpins the UK’s VAT system.   It is a common tax throughout the EU that is governed by EU law and principles.   

The major issues would appear to be the following –

  • Whilst UK VAT only applies to supplies that are made in the UK, the EU Directive that governs VAT ensures that supplies made between EU Member States are treated differently to those made outside of the EU
  • The VAT Directives have been implemented in the UK through the introduction of domestic UK legislation. VAT would continue to apply in the UK, at least in the short term.
  • Brexit would result in the UK no longer being part of the EU for VAT purposes. As such, even if VAT continued under UK domestic law post-Brexit, from the perspective of other Member States the UK (and the Isle of Man) would become a third country for VAT purposes. This would have implications for the imposition of VAT on cross-border supplies involving the UK. In particular, import VAT would become chargeable on the movement of goods between the UK and the EU.

Given the importance to the Exchequer of VAT (comprising as it does approximately 17% of revenue) VAT is likely to be replaced with sales-tax of some description.  

Impact on Customs Duty

Creating a common approach to customs duties (eradicating them between Member States of the European Community and adopting a common approach to the rest of the world) was at the heart of the EC’s creation.  In this was Customs duty is an EU tax. It is imposed directly by EU Regulations. Customs duty is charged on the import of all goods into the customs territory of the EC when those goods are released for free circulation. It is charged on import and collected by the Member State into which the goods are imported.

Brexit would mean that the EU Customs Duty Regulations would no longer apply to the UK. In theory, customs duties would be applied on the import of goods from the UK into the EU Member States.  However, in practice, it is very likely that if the UK were no longer subject to EU Customs Duty Regulations, the UK would be likely to enter into some form of Customs Agreement with the EU.



The reality is that Brexit would make little different to the substance of the UK having some form of sales-tax and its approach to Customs Duties.

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