Brexit and VAT

How will my small business be affected?

The UK introduced VAT in 1973 just before we joined the European Common Market, however with BREXIT looming and an exit of the single market on the cards, I have decided to look at the ways this may affect your small business, specifically when it comes to taxes and customs duties.

VAT and duties on goods

In a nutshell, the largest tax that may be affected by BREXIT is VAT. The current system with the EU has been simplified to allow for accounting for VAT and paying import duty when importing goods from the EU. This makes it easier for trade to occur within the EU.

However, if the UK left the single market, it may be the case that goods imported from the EU will be treated like other international goods. This means that if import VAT is due it will need to be paid before the goods can be released and only reclaimed on the next VAT return.  This could lead to cash flow delays for some companies - including smaller businesses.

If we experience a hard BREXIT, where the UK does not have access to the single market, customs and duty tariffs default to World Trade Organisation (WTO) rules. This would have major implications for some industries.

A perfect example is how WTO rules work for commonly purchased goods: WTO customs duty tariffs are currently 16.6% for corned beef, 15.4% for sausages, 10% for cars but 0% for tech goods. Unlike VAT, customs duty is not recoverable on purchases and simply increases the cost of the goods you are buying. 

However, on the positive side, BREXIT will allow the UK to set its own tax and VAT rates (either lower or higher than the current EU rate of 15%) or even decide to abolish VAT altogether. This could be seen as a boost for the consumer, but is unlikely.

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VAT on services

Industries that supply electronic services into the EU to non-business customers will be affected most by BREXIT. In these circumstances, the location you are required to account for VAT is the country the customer is based in. This potentially means some businesses may need to register for VAT separately in many different EU countries, whereas within the single market there are procedures in place to deal with this. Obviously this is an admin and logistical headache for a small online business.

What can I do about BREXIT? Get ready...

It is important to start planning how, if at all, you will adjust your business model to deal withBREXIT and its implications for your supply chain. 

  • A supply chain audit is a great idea and should focus on how your suppliers will be affected. 
  • You should also consider what expertise you may need to deal with any BREXIT related issues. 
  • You could also consider dusting off and re-writing your business plan, with a new focus on the BREXIT consequences for your staff, customers and suppliers.
  • Take the opportunity to review your supply contracts and improve or replace them.
  • Use SWOT analysis (strengths, weaknesses, opportunity and threats) to review the full implications for your business and the adaptations that may need to happen.

There are few positives that I can see for small business when it comes to leaving the single market - just neutral or negative outcomes. No wonder business is protesting at the mere thought of a hard BREXIT. But being prepared is everything and using the services of taxation experts will mean that you can ride the wave until things settle. The aim is for your business to see very little change at all.



Sharon Jay