Thousands of UK business owners could face upfront VAT charges on goods imported from the European Union (EU) once Britain leaves the customs union, under new legislation being considered by MPs.
The cross-border trade bill, due for its second reading in the House of Commons today (Monday 8 January), has received criticism from business groups for threatening importers with cash flow problems and additional bureaucracy.
Currently, business owners importing goods from within the EU can register with HMRC to bring them to the UK VAT-free. Once goods are sold onto the customer, VAT is added and can be reclaimed later.
Without a specific VAT deal with the EU, importers will pay VAT on all goods as they cross the border.
According to government notes on the Brexit VAT legislation, existing arrangements will end “so that import VAT is charged on all imports from outside the UK”.
Business groups have subsequently warned any upfront VAT liabilities would demand a significant outflow of funds and eliminate the existing cash flow advantage given to importers.
Business Advice contacted the British Retail Consortium (BRC) to find out how small business owners, such as retailers, could expect to be affected. William Bain, BRC Europe and international policy advisor, told us they needed clarity first and foremost.
“As it stands, there is a major risk VAT will be levied up front for goods bought from the EU meaning a major change in cash flows which, inevitably, will put further pressure on consumer prices,” Bain explained.
“The government could resolve this by securing a deal between the UK and EU on VAT and through policy measures adopted by HMRC like self-assessment.”
Helen Dickinson, chief executive of the BRC, elaborated on this scenario. “It’s ridiculous to assume that it would be easy to bring forward the timings on such significant amounts of cash,” she said in a statement.
“To plan ahead, retailers need to know what their liability on tax will be, and what measures are going to be taken to avoid this hit to cash flow with new costs on importing goods from Europe and higher potential pressure on prices for ordinary shoppers.”
Dickinson added: “Resolving this uncertainty can be achieved by securing a deal between the UK and EU on VAT and through policy measures adopted by HMRC like self-assessment.”
Nicky Morgan, Conservative MP and chair of the Treasury select committee, has written to HMRC asking for clarity on the legislation.
Morgan told The Observer: “One of the things that has not been explored fully is the implications for tax from Brexit. As Brexit comes closer we are beginning to see the reality of how it will bite. The same businesses that are going to be hit by new customs arrangements also face being affected by new VAT rules.”
While imported goods could see up-front charges at the UK border, it is believed VAT on services would remain under the current arrangements, whereby VAT is accounted for by the exporter.
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