With Brexit talks beginning in Brussels earlier this month, what leaving the European Union (EU) means in terms of VAT is one of the many unanswered questions regarding the UK’s economy. As VAT was introduced by the EU and is currently imposed on all the member states, whether the UK government will alter the current taxation system when it leaves in March 2019 is under debate.

At the moment the VAT rate in the UK is set at 20%. This is 5% higher than the minimum rate of 15% which is stipulated by the EU, but lower than some other European countries such as Sweden and Denmark (both 25%) and Hungary (27%).

After leaving the EU the UK government will be free to decide what to do in terms of VAT. One option is to leave rates as they are, another is to alter the percentage which needs to be paid. A further possibility still would be to scrap VAT completely, although given the amount of income the tax generates for HMRC this does not seem particularly probable.

The decision is likely be affected by other agreements in the Brexit ‘divorce proceedings’. Amongst the most difficult of these are the negotiations surrounding trade with the rest of the EU once the UK has left, particularly in terms of export and import, where taxes as well as increased amounts of administration are likely to be levied. Perhaps the only thing that is certain at this point is that until agreements have been reached, there is still a lot more uncertainty to come.

 Lima Accountancy is based in Leeds and offers a wide range of accountancy services including value added tax, corporation tax, business and personal taxation, accounts preparation and business start-up support. If you would like to find out more about how we could help your business please get in contact on 0113 844 0402 to arrange a free initial consultation.