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:

1. 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…
2. SME would be better off not having to do  all the statistics? Especially digital services are impeded
3. 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? 
4. 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)

1. None

References (^{superscripted})

1. VAT: https://en.wikipedia.org/wiki/European_Union_value_added_tax
2. VAT – intrastat: https://www.gov.uk/guidance/intrastat-duty-to-report-statistics
3. VAT – ESL: https://www.gov.uk/guidance/vat-how-to-report-your-eu-sales
4. VAT – digital services: https://www.gov.uk/government/publications/vat-supplying-digital-services-to-private-consumers/vat-businesses-supplying-digital-services-to-private-consumers
5. VAT: https://en.wikipedia.org/wiki/Value-added_tax_(United_Kingdom)
6. VAT: http://www.which.co.uk/money/tax/guides/uk-taxes-compared/how-vat-rates-have-changed/

Change log:

1. 9/3: Created VAT section 
2. 10/3: Created separate VAT page