New VAT rules on EU imports brings significant cash flow disadvantages

EU and UK businesses face additional costs and compliance burdens including VAT cash flow payments, following the Trade and Cooperation Agreement made between the two parties, according to tax specialists.

Moving straight to import VAT provides a significant cash flow disadvantage as you are having to account for VAT earlier than you had done previously as part of the Single Market and Customs Union.

While the UK and the EU have agreed that there will be no tariffs or quotas on the movement of goods as long as they meet the relevant rules of origin, there remain important changes to the tax system in regards to imports and exports.

Leaving the EU VAT regime means UK businesses will treat EU members as countries outside the EU, as of January 1, 2021.

Northern Ireland will apply its own protocol as part of the Withdrawal Agreement between the UK and the EU, UK buyers will be required to pay VAT on goods with a value exceeding £135 at the point of import – a new system that could be detrimental to businesses’ cash flow. For goods valued £135 or less, the VAT will be applied at the point of sale rather than at customs.

If these goods are outside the UK and sold via an online marketplace to consumers based in Great Britain, a UK supply VAT will be charged at the point of sale.

An EORI number has also become mandatory for UK businesses to move goods between Great Britain or the Isle of Man, and other countries or could risk facing extra costs and delays.

The compliance and extra bureaucracy that being out of the EU will be a burden that many businesses will never have been dealt with before. The larger businesses with bigger exports and those dealing with non-EU countries already face this compliance, but with a significant amount of import and exports with the EU over the past 40 years, many businesses have only been used to trading within the Single Market and Customs Union.

Many SME business who have been dealing with EU countries have been able to treat EU countries as an extension of their domestic market.  They can no longer do this.

This extra administrative and cash flow burden may mean that many businesses within the UK and EU will not see that continued trade is economically viable.

For larger businesses it is just an additional cost that they can deal with.  For smaller businesses who have benefitted from growing e-commerce and internet sales, the changes may be too much to face.  From SME businesses in the EU also, selling to UK customers may also become uneconomic.

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