Will a hard Brexit lead to more VAT registrations for B2C trade within the EU?

Although the impact of Brexit is still uncertain, the differing distance sales thresholds between member states (MS) is a key issue.

The thresholds currently differ between MS ranging from €25,000 and €100,000. This means that businesses selling to private customers (B2C) in these countries using their UK VAT number don’t currently have to register for VAT in these countries unless they surpass the local distance sales thresholds.

What does this mean Post Brexit?

If the UK no longer has access to these thresholds, it means that any business selling B2C in another MS will need to register for VAT. This will be difficult as many smaller businesses will not have the means to register in each country. For example, certain MS require a physical business presence in that country to be able to register for VAT.

It may also be extremely costly as the administration of continuing registration requirements has been estimated at €5,000-€8,000 per annum per MS. Another additional cost is the VAT rate itself. In some European countries the rate is as high as 27%, so businesses will need to take this into account into their cost of sales.

Brexit will also impact on supplies of electronic services to a B2C client base. Since 2015, businesses who sell electronic services to consumers have been able to report all of their EU sales in one return to HMRC under the MOSS (Mini One Stop Shop) in the UK. This means that it is not necessary to declare VAT due separately to each MS.

Impact of Brexit?

If the UK lose access to MOSS, businesses may no longer be able to use the UK as the prime registration country for MOSS. They will either have to register in one of the remaining MS to gain access to this simplification, or register for VAT in each MS in which it makes supplies.

Digital services supplied to UK consumers from outside the UK can currently be dealt with via the sellers MOSS return. The UK will be able to implement any regime post Brexit. This may or may not make the rules regarding trade more encouraging.

If you have any further queries please contact Nigel Smith or Lauren Graham.

Related Insight