Brexit VAT penalty ‘bombshell’ incoming to UK firms
A “slightly overlooked” Brexit VAT penalty “bombshell” threatens to land on 132,000 UK companies if the government fails to act quickly, a business group warns.
In fact, only a prompt deal with Brussels will stop VAT being charged to the companies – upfront – when they import goods or machine parts ready for sale, the BRC says.
Services would not be affected by the changes laid out in the Taxation (Cross-border) Trade Bill, but would leave goods importers out-of-pocket until the advance levy can be recouped.
“We welcome the government’s reassurance that firms will be recompensed for the outlay,” said the British Retail Consortium (BRC). “Yet no scheme currently exists”.
The consortium added that the ‘at the point of entry’ upfront VAT charge for goods importers would mean extra expenditure for the state, from having to collect and reimburse the firms.
Prices would end up higher for consumers too, due to the costs of moving goods in and out of the UK rising for businesses, which can currently register with HMRC to import VAT-free.
“Currently, if they are importing goods from EU member states, [firms] can treat the acquisition VAT through the normal quarterly lodgings of their VAT returns,” said Labour MP Chris Leslie.
“[But] knocking on for 300,000 businesses will be hit by this [change]. According to HMRC’s own statistics, the number of transactions that are hit by customs duties and, therefore, potentially by import VAT will go from 55million trades to 255million trades a year, with all the paperwork and rigmarole associated with that level of bureaucracy.”
The BRC has confirmed that, depending on the use of the goods, import payments would have to be collected by an already burdened HMRC and potentially reimbursed to firms at a later stage of the supply or sourcing chain.
“Second[ly] if the UK leaves the EU VAT area or does not establish a new common VAT area with the EU, firms face having to register for VAT purposes in most EU member states for trade in goods and services,” adds BRC policy adviser William Bain.
“Companies would also face requirements to use fiscal agents to conduct their tax affairs in EU member states where they trade. These burdens would further raise the costs of doing business in Europe.”
Written to last week and asked to find a solution, HMRC has been told to “act quickly” and review all the options, including self-assessment for VAT and deferral schemes to meet the costs threatening an estimated 273,000 companies.
“[These] businesses may face [challenges] on leaving the EU or at the expiry of any transitional deal,” Bain said. “The alternative is that firms will have to meet the costs through costly insurance plans to protect against unexpected cashflow bombshells.”