POST Brexit, we look at what may lie ahead for businesses trading in the European Union.
POST Brexit, we look at what may lie ahead for businesses trading in the European Union. As it will take two years following the UK’s notification of Article 50 before we leave the EU, there is short term comfort that businesses can trade as normal, with business to business trade in the EU being largely VAT and duty free. During this period, businesses should be planning for the future as there will be increased compliance and complexity to deal with. VAT VAT is a European tax. Withdrawal from the EU means that UK VAT law will no longer be governed by the EU VAT Directive. VAT raised £115bn revenue for the UK Treasury in 2015. Therefore, it is expected that VAT will remain in place as an important revenue raiser for UK Plc. On the plus side, more zero-rating may emerge, whereas on the downside VAT may be raised above 20 per cent, to cope with the economic impact and to generate additional revenue. The biggest VAT impact will be the change to intra-EU trade. At the moment B2B transactions are zero rated for VAT purposes. In future, such sales will be imports into the EU and subject to EU VAT, which has a number of potential consequences. We urge you to consider the following points: * Will a local EU VAT registration be required? This may particularly be the case if your customer does not want to be the importer of record, when goods are being imported; * There will be increased freight agent costs of arranging imports and exports. There will be a requirement to enter and clear goods and is estimated this could cost €4bn for UK business; * While UK businesses should still be able to recover VAT on overseas expenses the system is paper based and a lengthy process. Customs Duty Potentially a major impact and much depends on the negotiation of a Free Trade Agreement (FTA) with the EU. Without an FTA, the normal WTO tariffs apply. For example, for a UK car manufacturer selling cars to its French subsidiary would result in a 10 per cent duty tariff, being imposed on the transaction. Therefore, an FTA is critical to businesses with EU supply chains. It is hoped that as the UK is a country bordering the EU we may have an agreement similar to Norway which is a member of the EEA. Norway trades tariff free with the EU. It still has the additional cost of the import entry compliance but without the tariffs. The UK was a member of the EEA before it joined the EU and remains a member today. However, as widely reported in the press, achieving this type of agreement may have a cost both politically and economically. What can we do now? We recommend that businesses: * Review WTO tariff codes for their intra-EU supply chains, to consider the worst case scenarios; * Review customer contracts for delivery terms ie are your goods Delivered Duty Paid (DDP), this means that you as the supplier are responsible for any duty chargeable rather than the customer; * Consider if your customer will act as importer of record; * Establish the VAT rate of the countries you trade in; * Discuss the future structure of the business – could an EU subsidiary be established in the medium term; * Review supply chains and look at where goods are sourced from; and * Review transport costs and providers.