UK importers face cruel post-Brexit VAT sting

Import export
istock_wissanu01
Share this content

More than 130,000 British businesses may have to pay VAT upfront on imports from the European Union after Brexit.

The change would mean British firms buying from the EU will come into line with companies that have been importing from outside the EU. Currently, when you import from outside the EU, you pay the VAT upfront over and above any duties you incur. HMRC then issues a C79 form on a monthly basis with the details of the VAT amount paid.

So if you have an import in January, then by February HMRC will issue a C79 with all the details on there. Then you can recover your VAT for the January period on your next VAT return.

“The problem comes in if you’re on quarterly VAT returns,” said Gavin Barker, the UK head of VAT for Ayming UK, a business performance consultancy. Many of the big companies importing from outside the EU file VAT monthly, so they recoup the money relatively quickly.

A smaller or unprepared business importing from the EU and filing quarterly could face a nasty cashflow dilemma. As the FSB’s national chairman Mike Cherry put it: “If we move to an environment where small firms are forced to stump up for VAT on products bought from the EU before having the chance to recover those costs through their own sales, that could create real cash flow issues and add further complexity to the system.”

Nicky Morgan MP, the Treasury Select Committee chair, has written to HMRC to get clarity on the issue. She has called for the government to help businesses that would be adversely affected.

The government has acknowledged the issue in the past. Philip Hammond admitted last year that British companies could face delays and extra costs on imported goods from the EU. And in last year’s Autumn Budget, the Chancellor said the government would look to mitigate the problem.

There are a couple of ways to ameliorate the damage of the impending changes. “You can apply for a deferment agreement which gives you a month to pay,” Barker said. “On top of that you can also apply for SIVA (simplified import vat accounting), the guarantees you need for the VAT side of deferments can be reduced.”

Another option is to move to monthly filing, but as Barker pointed out, that in itself would be headache. “Enough businesses struggle with filing on a quarterly basis, let alone doing it on a monthly basis. And I don’t think HMRC’s systems could cope with a flood of businesses filing monthly.”

According to Barker, the government needs to revisit the existing reliefs and make them more “friendly”. At the moment, they come with a few pitfalls. “When you have deferment agreements you need to have a clean track record which can cause problems if a business has had numerous VAT returns with mistakes on it.

“It’s not uncommon. People argue that VAT is a simple tax but the fact of the matter is people get things wrong.”

Another difficulty in deferment is HMRC’s criteria that you have been trading as VAT registered business for three years. “HMRC will accept business with less than three years,” Barker said, “but that means extra checks and they could ask for extra guarantees.”

For CFOs and finance professionals, Barker said it’s critical to “look closely at what they’re purchasing from Europe so they can start modelling”. “There are so many companies that have stuck their heads in the sand, hoping there’ll just a golden answer, but it’s not looking likely.”

About Francois Badenhorst

Francois

I'm AccountingWEB's business editor. Feel free to get in touch with comments, tips, scoops or irreverent banter. 

Replies

Please login or register to join the discussion.

12th Jan 2018 12:10

Effectively this would be a 7.5% tax on imports for those on the small margin scheme, who cannot reclaim input tax against output tax as they simply pay a fixed percentage to HMRC on sales.Add to this any import duties and you are likely looking at 12.5% added to the cost of importing goods from Europe.This could mean, typically a price increase of £3 on a £25 item at point of sale.
Hardly competitive, and another reason to keep contracted in to the customs union .

Thanks (3)
to Blue17 vintage
13th Jan 2018 12:24

Yeah, like Gavin said in the piece, there are a few short-term steps we could take to soften the blow – but you're right, staying in the customs union would resolve this particular problem outright. Whether that's politically desirable though, given the fantastical promises that have been made, I dunno.

Thanks (1)
avatar
By GW
12th Jan 2018 14:36

Why is this news?
Did anyone with a knowledge of VAT on imports expect anything different?

Thanks (2)
to GW
13th Jan 2018 12:21

Hi GW, thanks for the comment. It's surprising to me as well. But alas, it seems there hasn't been much thought given to this.

Gavin Barker, who I spoke to for this story, said he's been alarmed as well by how little air time this problem has received. I suppose people are a little overwhelmed by all the changes and this got lost somewhere in the maelstrom.

I think, and this is just me theorising, many businesses have never thought of buying from the EU as 'importing' since it was a pretty seamless process. Many business owners now can't recall a time where this wasn't the case and have never modelled their costs to adjust for upfront VAT or customs duties. So I have some sympathy.

What do you think?

Thanks (0)
avatar
By GW
to Francois Badenhorst
13th Jan 2018 18:00

Is this simply a reflection of the poor way the referendum and both the in and out campaigns were run as well as the way the government has acted since. How many previously pro remain MP's would now point out any disadvantages of leaving?

Given the reaction the Supreme Court had when they said only Parliament has the authority to repeal UK legislation, I would not be surprised if the next step is to claim that this is an attempt to sabotage brexit and subvert the will of the people.

Thanks (3)
to GW
15th Jan 2018 10:44

GW wrote:

Is this simply a reflection of the poor way the referendum and both the in and out campaigns were run as well as the way the government has acted since. How many previously pro remain MP's would now point out any disadvantages of leaving?

I really agree with you on that, GW. I think both campaigns have a lot to be embarrassed about, and I've also been bemused by how disorganised the government has been.

Thanks (1)
avatar
15th Jan 2018 10:09

Small businesses wont mind paying as they will get £850m a week extra for the NHS :)

Thanks (1)
to Tom 7000
15th Jan 2018 10:41

I think you'll find the figure is actually 8 bazillion-trillion-million. :)

Thanks (0)
avatar
15th Jan 2018 10:37

On the bright side exporters to the EU will charge VAT and have the benefit of free cash for a couple of months.

Why do the remainers accentuate the negative and ignore the positive ? (..... waiting for the inevitable "ah buts" )

Thanks (1)
to BlueNose1812
15th Jan 2018 10:41

Hey BlueNose, cheers for the comment. Could you explain this a little more to me?

Thanks (0)
avatar
to Francois Badenhorst
15th Jan 2018 10:48

I would if it were true :-)

Thanks (0)
avatar
By LW64
15th Jan 2018 11:13

I agree - why is this a surprise to anyone at all.
I expect that there was also full detail in the impact papers.
And therein lies the issue.
That and I'm sorry to say putting a change of this magnitude in the hands of a bitter Joe Public.

Thanks (1)
avatar
15th Jan 2018 11:14

Hi,

Will this apply to services as well and if not will vat still be deducted at source by the EU supplier?

Thanks (0)
to propraxis
15th Jan 2018 11:58

I'll try to find out for you!

Thanks (1)
to propraxis
15th Jan 2018 16:57

Here's Gavin's response:

"Services are generally accounted for where received, regardless of whether the supplier is in the EU or the rest of the world, therefore no VAT would be charged on the invoice.

"Cash flow/timing issues should not be a problem, as this is accounted for in the VAT return by way of reverse charge: The amount is included in the box 1 figure as output tax and can then, subject to any partial exemption restrictions, be recovered through box 4 of the VAT Return as input tax."

Thanks (1)
avatar
15th Jan 2018 11:22

Clearly this is a two-way process. Oil traders in Rotterdam buying from Norway will not pay VAT as Norway although not in the EU is in the Single Market/Customs Union. Both Conservatives and Labour insist we won't be. This will mean WTO rules for oil imports from Scotland. Why would you import Scottish Oil & pay VAT when you can import Norwegian Oil & avoid it. Catatonic stupidity to insist on leaving Single Market/Customs Union.

Thanks (2)
avatar
By malc901
15th Jan 2018 12:31

For anyone with a basic knowledge of VAT that was obvious prior to the referendum, I'm surprised more was not made of it. For any business importing substantial amounts from the EU this will be a major cash flow problem. The import VAT ( and duty) will have to be paid either when the goods reach the UK or by the 15th of the following month if the business has a VAT deferment account, for which a bank guarantee will be needed, but the business will not be able to recover the VAT until the end of their VAT quarter.

Thanks (1)
avatar
to malc901
15th Jan 2018 13:00

That is assuming that we maintain the current regulations, which of course were modelled by the EU. Perhaps once out of their legal straight jacket we could tweak them a little and defer Import VAT payment say until the last day of the individual VAT quarter. Or once the economy is booming and the UK doesn't need the 6 week cash flow benefit, remove all import VAT for registered VAT traders.

Thanks (0)
avatar
15th Jan 2018 17:28

A deal probably will be done. Surely the same can be said from the other side (s). come on this is logical surely?

Thanks (0)
avatar
By Mikolaj
15th Jan 2018 20:03

This is utter speculation.
Along with representatives of other accounting, tax and legal bodies I sat in JVCC for CIMA last week with HM Treasury and HMRC and their is 100% uncertainty as to any ramifications of Brexit, so "stirring it up" is neither constructive nor at all helpful. The real gut feeling from HM Treasury is that the UK and the EU will work out a special deal which will not hinder cross-border business. The EU as a whole (especially the importers to the UK) would suffer disproprotionately from border tariffs and/or vat, so their proposed imposition of is rather less likely when one considers logically. We might be visited by aliens next week, but then again, we might not. As yet no government department is certain about what Brexit will actually bring and what changes will need to be made. Frightening headlines and do not help, balanced debate is good, but your article is not balanced.

Thanks (0)
15th Jan 2018 23:28

I have done a fair amount of work in Jersey in the last couple of years. They are outside of the EU so have already dealt with this.

Their version of VAT (GST) has a special registered trader status. Any registered business who regularly import (most of them there) can receive their goods free of GST if they are allowed to register for the scheme. My local advice is that although there some hoops nearly everyone gets through.

The upshot of this is that GST is collected on the local sale but the cashflow pay and reclaim is not done. It seems to work well but businesses have to aware that there is no reclaim come VAT time.

It's also fair to say that their return focuses in more detail on exports/imports in the net figures reported.

Thanks (1)
avatar
16th Jan 2018 09:35

On the plus side perhaps we won't have to file intrastat returns and EC sales lists.
Just another Brexit scare story.

Thanks (0)