Author: JP / / Latest News
Businesses are being warned that VAT rules could change once Britain leaves the EU. Concerns are over how Businesses could have to pay for VAT on imports from the EU upfront.
The current deal with the EU means that companies pay the VAT on products once they have been sold. The price of the product is sold with VAT added on top. This means that businesses pay the VAT from the the final sale of the product.
Dealing in this way makes cash flow easier for businesses, especially smaller businesses.
Importing items that are VATable from outside the EU incurs an upfront cost for the business. The business pay for the product including VAT and then regain that money once the product has been sold to the consumer.
It was brought to light of the possibility of Post-Brexit changes. Leaving the EU will mean leaving the current deal we have in place. Therefore incurring an upfront charge like importing from outside the EU.
This could potentially mean cash flow problems for some businesses. Having to pay the upfront cost and only recouping the cost once the product is sold could prove problematic. Concerns are being aired by Nicky Morgan, the Tory chair of the influential Treasury select committee and the British Retail Consortium. The British Retail Consortium represents 70% of the retail industry. They have stressed possible cash flow problems and that it could add time to imports.
What Could Happen
Nicky Morgan has written a letter to HMRC asking the financial implications to businesses and the the likelihood that the UK will still participate in EU-VAT area. This is after she said she would construct a full investigation into this.
HMRC have said they could help keep the process the same if they received more funding from the Treasury.
Alternative ways to keep the system the same would be to stay in the Customs Union or to negotiate to remain in the EU VAT area.
If these deals don’t happen, or the HMRC don’t get the funding needed to be able to keep the same process then Businesses may have to pay the upfront cost. This could be a positive or negative, we will only know if it happens. The UK have not had to pay these upfront costs for imports from the EU before so this is unknown territory.
For more information on this matter
The Guardian have an article with more quotes from Nicky Morgan and the British Retail Consortium. This can be found here.
For information on dealing with VAT correctly concerning invoice basis (Standard VAT accounting) you can see our post here.