Is there a solution to the post-Brexit import VAT conundrum?

David Wilson

The second reading of the Taxation (Cross-Border Trade) Bill has brought into sharp focus that, post-Brexit, the UK will lose access to some of the beneficial VAT rules available to EU members for the intra-community supply of goods.

Instead, on leaving the Single Market and Customs Union, all UK importers will be required to pay import VAT (and possibly duty depending on ongoing negotiations) on goods entering the UK.

Such arrangements, currently applied to imports from non-EU countries, could result in negative cash-flow implications (import VAT), increased costs (customs duty), and supply chain delays (VAT / customs clearances).

While the UK is a member of the EU, no VAT (or duty) is charged by an EU supplier. Instead, a UK business self-accounts for VAT by charging itself the VAT due, and recovering that VAT on the same periodic VAT return. Under this simplification procedure there is therefore no ‘cash-flow’ issue for the UK business as no money changes hands. It’s merely a ‘paper’ exercise.

On leaving the EU, VAT (and possibly duty) will be immediately due and payable to HMRC upon importation. In practice, this means that a UK business purchasing goods in January cannot recover or offset its import VAT until it completes and submits its March VAT return in April, irrespective of whether it has arranged deferment facilities.

Additionally, the cash-flow cost of importing goods from the EU will not simply be the current 20 per cent VAT rate added to existing costs. Import VAT is calculated on the customs value, ie after the addition of any customs duty payable on EU imports, (including shipping costs).

During the Bill debate, the Government indicated that it ‘would do everything it possibly can to mitigate the effects of the changes to the VAT regime’ for companies that face having to pay VAT on importation of goods from the EU after Brexit.

The solution may lie in adopting the special regime operated by the Netherlands. Although this wouldn’t address the payment and clearance for customs duty, it could mean that, instead of paying the import VAT at the time of importation, import VAT would be accounted for and recovered on the same VAT return, much as it is now for intra-community supplies. 

This would give UK companies the ability to delay the time at which the import VAT must be accounted for on all goods (EU and non-EU), ensuring that businesses are not overly impacted by cash-flow issues, and without affecting the transport of the goods.

For more information, please comment below or get in touch with David Wilson.

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