Leaving the European Union has implications for partial exemption special methods (PESMs) that incorporate provisions relating to VAT recovery in relation to non-EU transactions, since the pre –Brexit legislation would have allowed recovery of VAT on UK transactions that became ‘non EU’ when the UK left the European Union. To mitigate this problem a new regulation 102(2A) has been inserted into the VAT Regulations 1995.
The new regulation enables the current VAT recovery position – exempt from VAT and with no recovery available – for UK to UK supplies of financial services to be maintained within all PESMs. This removes the need for PESMs to be redrafted by the business and reapproved by HMRC with the associated administrative burden this would have created. No action by business is necessary as a result of these regulations as they retain the status quo.
The new regulation can be found here SI 2019513