Business leaders have expressed shock at seeing the UK seemingly move closer to the position of fully separating its VAT system from that of the European Union.
Amendments to a Brexit bill passed through the House of Commons in recent days and will, if implemented, effectively commit the UK to creating its own VAT system that functions entirely separately from that of the EU.
The British Chambers of Commerce (BCC) has described the development as being a “potential Brexit bombshell” and there are concerns and uncertainty among business bosses about what impact the legislation might have.
Adam Marshall, director general of the BCC, has insisted that businesses are in urgent need of clarification about what the proposed changes to VAT laws might mean for their accounting processes and for their future operational competitiveness.
“Firms need to know – now, not in a year’s time – whether and how the government intends toaddress the potential VAT bombshell facing businesses trading with the EU27 in future,” Mr Marshall has said.
“Without a more generous deferment account scheme or postponed accounting, many companies face severe cash flow issues, big new administrative headaches, and a serious loss of competitiveness.”
At present, the VAT system for UK companies works on the basis of firms reporting on a quarterly basis what they’ve imported and exported from and to EU countries, with each company’s VAT bill calculated subsequently.
The worry is that a complete separation of UK and EU VAT regimes might result in companies needing to pay VAT as part of and at the same time as conducing any sort of cross-border transaction.
Reflecting on what the amendments to the government’s Brexit-related Customs Bill might mean for businesses, Mr Marshall said: “This is the first view businesses have on what the VAT regime could be like after Brexit – and it doesn’t look pretty.
“A separate UK VAT system will create significant on-going costs for businesses trading across borders, unless special work-arounds are put in place.
“This change will pile pressure on Her Majesty’s Revenue and Customs, which is already contending with other facets of Brexit, plus the delivery of a new customs system and Making Tax Digital.”