Theresa May’s declaration that the UK is to leave the single market brings with it a whole host of VAT and Customs Duty challenges which we recommend that businesses start planning for now, as there will be increased compliance and complexity to deal with.
VAT is a European tax. The biggest VAT impact will be the change to Intra-EU trade. At the moment B2B transactions are zero rated for VAT purposes. In future such sales will be imports into the EU and subject to EU VAT, which has a number of potential consequences. On the plus side, there will be no more Intrastat or ESL’s for UK business to complete. However, we urge you to consider the following points:
- Will a local EU VAT registration be required? This may particularly be the case if your customer does not want to be the importer of record, when goods are being imported into the EU;
- There will be increased freight agent costs of arranging imports and exports. There will be a requirement to “enter and clear goods” into both the EU and the UK;
- Whilst UK businesses should still be able to recover VAT on overseas expenses the system is paper based and is a more onerous and lengthy procedure.
This has potentially a major impact and very much depends on the negotiation of a Free Trade Agreement (“FTA”) with the EU. Without an FTA, the normal WTO tariffs apply. For example, for a UK car manufacturer selling cars to its’ French subsidiary would result in a 10% duty tariff, being imposed on the transaction. Therefore, an FTA is critical to businesses with EU supply chains. It was hoped that the UK may have an agreement similar to Norway which is a member of the EEA. Norway trades tariff free with the EU. This would now appear to be out of the equation and we are into a whole new territory..
What can we do now?
We recommend that businesses:
- Review WTO tariff codes for their intra-EU supply chains, to consider the worst case scenarios;
- Review customer contracts for delivery terms i.e. are your goods Delivered Duty Paid(“ DDP”), this means that you as the supplier are responsible for any Duty chargeable rather than the customer.
- Consider if your customer will act as importer of record;
- Establish the VAT rate of the countries you trade in;
- Discuss the future structure of the business – could an EU subsidiary be established in the medium term;
- Review supply chains and look at where goods are sourced from; and
- Review transport costs and providers.
If you would like further information or advice on the topics discussed please contact Leighton Reed
This article originally appeared on the blog of our member firm, MHA MacIntyre Hudson.Tags: Brexit