Tax professionals already anticipate an expected onslaught of VAT changes resulting from the United Kingdom’s exiting the European Union, according to a recent poll by Avalara EMEA, a leading provider of cloud-based tax compliance automation for businesses of all sizes.  51 percent project increased complexity in VAT compliance, and paying more in VAT and customs (68%).  While 53 percent of those polled expect substantial impact on their businesses, more than half have not yet begun planning for Brexit at all (54%).

“Now more than ever, VAT automation becomes key to ensure businesses are prepared for the new requirements of Brexit,” said Richard Asquith, VP of Global Indirect Tax, Avalara EMEA.  “While the timing remains uncertain, businesses can start to prepare now by ensuring they are set up with the right technology.  VAT automation platforms ensure organisations remain compliant with regulations and do not suffer the burden of huge losses in the midst of navigating a new trade environment.  Updating systems now can ensure a seamless transition once Brexit arrives.”

The poll also uncovered the following findings:

• 49% predict Brexit will happen by the end of 2020, a ‘soft exit’
• Half anticipate the UK will adopt a Canadian trade model (World Trade Organization/Free Trade Agreement)
• Poll respondents believe that the highest risks Brexit will bring for the industry include:
  • 63% - Preparedness of HM Revenue & Customs
  • 55% - Increases in customs and other border costs
  • 45% - Adapting internal enterprise resource planning (ERP) systems

EU VAT Implications

Avalara anticipates many areas of shared VAT practices will be reviewed and revised as Brexit negotiations take place.  Some of those include the following:

• Legislation - Upon completion of the exit negotiations, the UK will no longer be required to follow the EU VAT Directive or European Court of Justice (ECJ) rulings. Instead, the UK’s VAT Act will take supremacy. The UK government will be free to amend the Act to reflect its fiscal policy objectives.
• Exit from the single market - The major VAT change for UK companies following Brexit will be the loss of their intra-community trading status. Instead of zero-rating B2B sales to EU companies, transactions will be treated as imports into the EU, and subject to EU VAT.
• UK to join the EEA? - It is possible that the UK could become a member of the European Economic Area, which participates in the Single Market encompassing the free movement of goods, services, people and capital. This would give the UK many of the benefits of free trade with the EU, although it would lose the right to have a veto or vote over any EU laws passed that are imposed on EEA members.  The EEA does not cover indirect tax, so the UKwould remain outside of the EU VAT regime.

• Freedom to set UK VAT rates - The UK will no longer be constrained by the EU VAT Directive on setting its VAT rates. The UK will therefore be uninhibited to change reduced VAT rates on key products like domestic fuel, women’s sanitary products and e-books.
• EU VAT recovery - UK companies will lose the right to use the simplified 8th Directive online VAT recovery system for their EU VAT reclaims. Instead, since they will be non-EU companies, they will have to resort to the paper-based 13th Directive regime. This is slower, and prone to challenges from the tax authorities.

For more information on Avalara and ongoing news on Brexit and the tax industry, please visit www.vatlive.com. 

Poll conducted on 13^th September 2016 at Avalara’s VAT Summit with 60 VAT specialists.

Avalara EMEA, a leading provider of cloud-based transactional tax compliance automation for businesses of all sizes, held its second annual VAT Automation Summit, sponsored by Brewer Morris. The summit brings together leading indirect tax professionals to discuss topics affecting the industry, including EU VAT fraud and the future of tax compliance automation. A central theme of the summit is focused on the need for businesses to adopt tax automation solutions to combat fraud and ensure greater compliance. This topic is timely, due to recent news released by the European Commission regarding the ‘VAT Gap’, or the staggering €160 billion in lost EU VAT revenues in 2014. .

“Moving to real-time tax reporting will help to increase transparency in the VAT system and can prepare businesses for tax authorities’ demands for more, live data,” said summit speaker Richard Asquith, vice president of Global Indirect Tax, Avalara EMEA.  “VAT automation systems are a valuable solution for managing complex VAT processes, such as cross-border sales for businesses trading in countries with different regimes or regulatory requirements.”

In addition to the EU VAT Gap, the summit is addressing major developments shaping domestic and international trade, including the UK’s initiative to streamline the tax reporting process through its 2020 ‘Making Tax Digital’ initiative. Through this new system, HM Revenue & Customs aims to eliminate the tax return over the next five years.  Instead, businesses will be required to track tax compliance digitally and update HMRC at least quarterly via a digital account.  The goal of this proposal is to create a more efficient tax reporting process; with further regulatory change on the horizon, such as Brexit, its implementation is paramount.

Across the globe, countries such as China, India, Egypt and the Gulf Cooperation Council (GCC) states, are placing increased emphasis on VAT collections or introducing new regimes. These new systems lead to further changes in international VAT requirements, and thus further complexity.

New regulations and the need to mitigate fraud present a prime opportunity for tax automation services that help businesses to comply with country VAT rates and eliminate errors which are costing firms millions in tax penalties.

Blockchain technology

While VAT automation services offer a more immediate solution to address these recent trends, a longer term opportunity for accountants lies in blockchain technology.  This public ledger system records and validates each and every transaction.  Entries are registered and cryptographically sealed, making them nearly impossible to falsify or destroy.

“Blockchain technology has massive implications for tax professionals,” said Kid Misso, Senior Director of Solution Consulting, Avalara EMEA.  “The fact that it is a validated agreement between two or more parties means it cannot be repudiated or invalidated. The indelibility, speed, and synchronization of this technology can lead to greater accuracy and transparency, helping to reduce the likelihood of fraud in the future.”

For more information on Avalara and video from the 2016 VAT Automation Summit, please visit www.vatlive.com.