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In a letter seen by the Financial Times from Mel Stride, financial secretary to the Treasury, to Charlie Elphicke, MP for Dover, the minister also says: “The government aims to keep VAT processes after EU exit as close as possible to what they are now.”
If Britain seeks to remain inside the EU VAT area, it will continue to be bound by rules set in Brussels that are ultimately policed by the European Court of Justice, breaking one of Theresa May’s negotiating red lines.
If Britain leaves the EU VAT regime, it will need border infrastructure to impose VAT at borders, as occurs on the Swiss-German border, or accept a loss of control of VAT revenue. The EU VAT area is separate from the bloc’s customs union and single market.
One particular area of concern for HM Revenue & Customs is the potential VAT revenue losses from online sales and mail order from the EU after Brexit. Last year the EU agreed a new system to combat fraud and tax avoidance.
From 2021, it will set up a system for all online sales in which a condition of sale to EU consumers — whether from inside or outside the EU — will be that online retailers levy VAT on goods in the country of purchase and pass the revenues to the authorities.
An EU “one-stop shop” system would then ensure that the revenues are sent to the finance ministry in the correct country, extending a successful introduction of the same procedures in 2015 for digital services.
The EU hopes to lower compliance costs and raise €7bn a year additional VAT revenue, mostly from the elimination of existing fraud.
Going further than any previous comments on the subject, Mr Stride wrote: “This is an approach that the UK very much supports.”
“The EU Commission is currently working on the detailed implementation rules, and the UK continues to play an active part in that process.” [...]
Full article on Financial Times (subscription required)