Thousands of firms are braced for up-front VAT charges on ?212bn worth of EU imports, as new research highlights the cash flow challenges facing business owners after Brexit.
The report, from small business accountant?Accounts and Legal, warned that Britain?s removal from the EU VAT area would create short-term cash flow issues for importers and increase the administrative burden for UK customs.
Currently, business owners can register with HMRC to import goods from the EU VAT-free, adding it once goods are sold to the customer and reclaimed later.
However, under the terms of the cross-border trade bill, currently being debated by policy makers, the UK will be treated as a non-EU member, meaning 20 per cent VAT will be added to all goods as they cross the border.
With the total value of EU-imported goods reaching ?212bn in 2017, Accounts and Legal warned that 205,000 business owners buying goods from the bloc face up-front VAT charges worth ?41,500 (based on a typical VAT cycle) ? a figure the firm warns must become part of their working capital after Brexit.
?While this does not actually cost the company money in the long-term, it could cause cash flow issues in the short-term, particularly if the VAT bill is a sizeable one,? explained the report?s author and senior accountant at Accounts and Legal, Keir Wright-Whyte.
?When the new legislation comes into play, it will be vital for businesses in the UK to reinvent their?cash flow forecasting?if they are to avoid major problems down the line.?
Business groups have also warned that an up-front VAT liability would eliminate the existing cash flow advantage given to importers and demand significant funds.
William Bain, Europe and international policy advisor at the British Retail Consortium (BRC), told Business Advice that small firms 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.?
The proposed system would reflect imports from non-EU states, which Wright-Whyte warned could also increase delays at borders and ports.
He added: ?HMRC may not escape scot-free either. It is fair to expect that these new importing operations will need managing and supervision, and so it is not unlikely that HMRC will have to develop new systems and recruit new staff in order to oversee all of the new importing activity and ensure Britain?s move out of the EU trading bloc is a smooth transition.?
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