In another unforeseen Brexit risk to UK businesses which will hit small to medium companies disproportionately hard, it has emerged that after the UK leaves the EU, VAT (Value Added Tax) will need to be paid upfront in accordance with new, UK legislation being prepared.

Under the Customs Bill, which has its second reading this week, changes to VAT collection will mean that UK businesses will no longer be able to treat goods imported from the UK as “acquisitions” for tax purposes, meaning that such importers would be obliged to pay VAT to HMRC upon receipt of the goods, claiming it back when the end customer in the UK has made payment. This could mean that smaller firms will face serious cashflow problems.

Pro-remain, Conservative chair of the Treasury Select Committee Nicky Morgan, has written to HMRC seeking clarification of the new proposals and how they will affect UK importers. She noted that as Brexit draws near “we are beginning to see the reality of how it will bite”.

The move is a consequence of the UK’s proposed withdrawal from the Customs Union. It would mean that goods from the EU would need to be treated like imports from the rest of the world, with VAT falling due to HMRC on the 15th day of the month following import, leaving the importer holding the bag until the goods are eventually sold to their UK customer. This will clearly have major implications for the stock levels of items held by UK suppliers since tax will fall due on them whether they are sold or not.

The British Retail Consortium is less than impressed. Their chief executive, Helen Dickinson stated: “It’s ridiculous to assume that it would be easy to bring forward the timings on such significant amounts of cash. 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. 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.”

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