Recently, European Leaders took the decision to offer the British government a delay of up to 31st October this year on leaving the European Union. It is still possible for the UK to leave the EU prior to this date.
Deal or no deal?
This postponement means that the UK has up until to the last day of October to agree with the withdrawal agreement that Prime Minister May agreed with other EU leaders, or to offer alternatives. However, Donald Tusk, President of the European Council, indicated that the Withdrawal Agreement cannot be renegotiated.
Now that the UK has received an extension, the immediate danger of a hard Brexit, or ‘no deal’ Brexit has been averted. The UK should have left the EU on Friday 12th April.
Effects on VAT
This postponement means that there are no immediate changes to indirect taxation, including VAT. Without this postponement and without a deal in place, the UK would have become a so-called ‘third country’ upon the original exit date.
A consequence of this would have been that when importing and exporting to and from the United Kingdom, VAT must be declared and paid at the border, unless you have a so-called Article 23 license. Possession of this license means that you do not have to pay VAT at the border, but can instead transfer it to your VAT return. These rules are now expected to apply from October 31st of this year.
The consequences for direct taxes – such as income tax – would have remained limited, even without this extension. This is because the transitional rules regarding Brexit: in the case of leaving without a deal there would be assumed that the United Kingdom would remain part of the EU until 2020.