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The Impact of Brexit on VAT

July 2016

I have been surprised by the number of people that I meet who are not aware that VAT is a wholly European sales tax. The rules and basis of VAT are enshrined in European legislation of which the UK version is purely a copy. When we Brexit the EU, VAT will cease to be controlled by Brussels and will be moulded to our own fiscal and social needs.

The areas most likely to be affected are those covered by the zero rate and exemption relief. These are the areas of social and humanitarian wellbeing and are protected from VAT by EU legislation. In a broad sweep it includes housing, healthcare, education, finance and insurance. The EU has ensured for the past 40 years that these areas are ring fenced and protected. Following Brexit, the UK government will be required to take on the role of UK VAT ‘policeman’ but will be free to select their own areas of taxation. Bear in mind it was a British government decision to impose VAT on gas, electricity and heating supplies. They also imposed an Insurance Premium Tax on insurance products that are exempted from VAT by the EU.

The possibility of VAT on food, gambling, books, newspapers and private education can’t be ruled out. To date, and since its introduction in Europe in 1967, VAT has been a well regulated and stabilising force for the general benefit of the population at large, even if it has not been universally popular for drivers, smokers and drinkers it has formed a protective umbrella around basic social needs. After Brexit that umbrella will be removed and the results are potentially harmful unless the VAT regulations are tightly drawn.

What will happen to VAT post Brexit is an area for much speculation and discussion but one thing is certain, the manner in which the tax is governed will be open to change as never before. It is hoped that future UK governments will maintain the general benefits available through the present system and trust to the British courts to determine the extent to which sweeping changes may be judged to be fair and reasonable.

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