Red line crossed? Britain could stay in European VAT area after Brexit

Britain could stay in the European VAT area after the Brexit transition period, according to reports – a move which would see one of Theresa May’s so-called “red lines” crossed.

According to the Financial Times (click for link), Britain is taking an ‘active role’ in shaping new EU VAT regulations for the 2020s, suggesting the Treasury is planning for the UK to remain inside the area after the Brexit transition period due to end at the end of 2020.

In a letter seen by the newspaper from financial secretary to the Treasury Mel Stride to Dover MP Charlie Elphicke, the minister writes: ‘The government aims to keep VAT processes after EU exit as close as possible to what they are now.’

If Britain sought to remain inside the EU VAT area, it would continue to be bound by rules set in Brussels which are policed by the European Court of Justice (ECJ), breaking one of prime minister Theresa May’s negotiating red lines.

Mrs May has previously made the jurisdiction of the ECJ a red line in Britain’s negotiations, saying that the British Supreme Court would be the ‘ultimate arbiter’ after Brexit.

Businesswoman Nicola Horlick , a champion of the anti-Brexit Best for Britain group, said staying in the EU VAT area after the transition period would mean that it would not be necessary to have VAT collection at the border.

But she added: “It will also mean that the UK will be bound by rules set in Brussels and that any disputes will fall under the jurisdiction of the European Court of Justice. “This seems to cross one of Theresa May’s red lines, but it is an acknowledgement of how difficult it is to maintain borderless trade with the minimum of disruption and delays if there is a clean break with Europe. “The government still seems to think that we can leave the single market and customs union, but trade freely with the EU, but it is unclear to me why [European chief negotiator Michel] Barnier would agree to this.”

If Britain left the EU VAT area, it would need infrastructure to impose VAT at borders, as currently happens between Germany and Switzerland, or accept a loss of control of VAT revenue.

The VAT area is not connected with either the customs union and single market, both of which Mrs May has said Britain would be leaving.