EU vs UK: How the Tax Landscape is Evolving

Over six years on from the UK’s EU referendum, the two territories have diverged on many issues. Tax is one area that exemplifies the changes caused by Brexit, with the UK and EU adopting different attitudes and approaches to indirect tax collection. So let’s take a look at how the tax landscape is evolving in both regions.


EU Tax Landscape

VP strategy and regulatory at Sovos, Christiaan Van Der Valk, shares his views on how the tax landscape is shifting across the EU.

Digital tax controls such as continuous transaction controls (CTCs) and Standard Audit File for Tax (SAF-T) frameworks have grown in popularity across EU tax authorities, giving Member States greater visibility over tax reporting and associated business operations in the region. Within the EU, however, there is no universal system in place. Italy, Hungary and Spain, for instance, have led CTC implementation in Europe, whilst France is gearing up for a major shift towards real-time controls in 2024. As some Member States have already invested heavily in their own systems, harmonising the legislation for CTCs could be difficult.

Cross-border e-commerce is another grey area. Little over a year ago, the One Stop Shop (OSS) VAT return scheme – the single tax declaration for goods sold to consumers across the EU – was introduced. However, as with all new policies, some teething issues persist. Consultations have taken place on pain points, like the Import OSS (IOSS) threshold, which could be increased to raise the number of eligible transactions or made mandatory for all goods. Customs duty threshold, how to minimise double taxation, and how B2B services can be applied to OSS are other concerns despite its positive first year.”


UK Tax Landscape in a Post-Brexit Era


Sovos UK VAT expert and consulting services director, Alex Smith, shares his views on the current tax landscape in the UK and how it has been impacted by Brexit.

“Meanwhile in the UK, as we carve our own path following Brexit, we have several things to consider.

The UK government is yet to find a solution that allows trade to flow freely, that works in several key areas, including the Northern Ireland protocol and customs duty, both of which will impact VAT for cross-border trade. Uncertainty still reigns as this will likely continue to play out in 2022, and possibly into 2023.

Whilst there are no signs that the UK government will adopt CTC or SAF-T models anytime soon, they did take a first step towards a digitised reporting system by introducing the Making Tax Digital (MTD) scheme. It isn’t as sophisticated as other tax reporting models, but it’s a step in the right direction, now requiring businesses in the UK to submit their tax returns digitally. Looking ahead, the UK will likely build upon MTD to streamline and increase the accuracy of tax reporting.

In the midst of pandemic recovery and tackling rising inflation, adjusting VAT is another possibility to alleviate some of the burden on households. For instance, we saw a cut during the 2008 financial crisis to help relieve pressure and help encourage spending. Businesses should welcome and prepare for a potential temporary drop from the current VAT rate of 20%.

What’s clear is that both regions are headed in their own direction. CTCs and SAF-T will shape the future of tax reporting in the EU, as well as the OSS/IOSS mandates that affect the whole bloc and its trading partners. To continue trading with the EU, the UK needs to align itself with these, but other more pressing issues are currently top of mind.”


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