UK votes to not rejoin EU VAT regime post Brexit

Tue 17th Jul 2018

On 16 July, the UK Parliament voted to amend the Brexit Customs Paper to ensure the UK does not remain within the EU VAT regime post Brexit. Aside from meaning the UK will exit the VAT regime, the amendment could raise questions over a hard Northern Ireland border.

The amendment, won by 3 votes (303 vs 300), was one of four put forward by the hard Brexit European Research Group (ERG) of the UK’s Conservative party. It means: the UK will not attempt to collect EU VAT on behalf of other EU states; enjoy many cross border trade VAT simplifications; nor remain subject to European Court of Justice rulings on indirect tax.

Following the other amendments, it will be unclear how the ‘Chequers’ proposed facilitated customs arrangement would be legal for HMRC to enforce.

Northern Ireland VAT hard border risk

Leaving the VAT regime will present further issues on the hard vs frictionless border between Northern Ireland and Ireland. Being outside of the regime means the UK will have to instal some mechanisms and physical controls to verify that import VAT has been correctly declared at all borders to avoid massive fraud risks. Although it is not clear if the VAT amendment is in itself unenforceable in the context of the EU Withdrawal Bill’s Good Friday Agreement amendment for a frictionless border with Ireland.

Four amendments to avoid Parliament defeat

The other amendments included the UK not collecting customs tariffs or duties as presented in the recent Brexit White Paper, published last week after the ‘Chequers summit’. This had advocated a new customs arrangement (“facilitated customs arrangement” ) with the EU to protect UK manufacturing and help avoid a ‘hard border’ with the Northern Ireland.

The UK government did not challenge the amendments so as to avoid a defeat in the House of Commons.

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