Generally speaking, since 1 January 2021 the UK is no longer required to retain any VAT laws that are harmonised with those of the remaining EU Member States, except as regards movements of goods directly to or from Northern Ireland. UK VAT laws applicable to other dealings with goods (and any dealings in services) are now purely a matter for the UK.
In the short term, at least, the UK will retain a similar – but entirely separate – system of VAT laws. However, the UK will now have greater freedom to change the details of its own VAT regime (as demonstrated on 1 January 2021 through the immediate abolition in the UK of the EU’s compulsory minimum 5% VAT charge on sales of certain sanitary products). Therefore, it is possible that over time the UK’s VAT regime will diverge more and more markedly from the standard EU model, whether in relation to the rates of tax applied or to matters of principle (such as the general scope of the regime, or the methods adopted for computing taxable amounts).
The trade agreement reached between the UK and EU on Christmas Eve 2020 currently remains subject to formal ratification, although it is assumed that there will be no fundamental changes to the agreement at this stage. This agreement has little significance in VAT terms but it does prevent the levying of any separate customs duties (i.e. so-called “tariffs”) on any goods imported into the UK from the EU or vice versa, provided that the goods originate in either the EU or the UK. The agreement contains various detailed rules which determine whether goods should be regarded as originating outside the UK and EU for these purposes.
Except in relation to direct movements of goods between Northern Ireland and the EU, any movements of goods between the UK and the EU will be treated in the same manner as movements of goods between the UK and any non-EU territories. But certain services will no longer attract UK VAT when supplied from the UK to a non-business customer based in the EU. It was previously necessary to distinguish between EU business and non-business customers for UK VAT purposes but all non-UK customers of UK businesses are now effectively treated alike for VAT purposes. This typically means that UK VAT is no longer charged to non-UK customers of UK businesses, although some exceptions remain (for example, in relation to sales of UK land or the provision of UK construction services to non-UK customers).
It should also be noted that, as in the pre-Brexit era, the Isle of Man will continue to be treated as part of the UK for UK VAT purposes but the Channel Islands will not be so treated (although the Channel Islands do now form part of a single customs territory with the UK and the Isle of Man).