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
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