Small British businesses struggling to navigate new Brexit VAT rules

(qlmbusinessnews.com via theguardian.com – – Tue, 26th Jan 2021) London, Uk – –

Britain is no longer part of the EU VAT area, leading to extra costs for companies exporting to Europe

Some hauliers have refused contracts with small UK businesses because of the need for VAT guarantees.

Small British businesses exporting to the EU are struggling to navigate a new VAT regime, with one tax advisory firm receiving up to 200 calls a week from worried companies.

The Federation of Small Businesses (FSB) said its members are facing “significant issues” as a result of leaving the EU VAT area. “Businesses just did not have enough time to prepare for this,” said Selwyn Stein, managing director of VAT IT, a firm that helps reclaim the sales tax. “They’re being hit by a rulebook from 27 separate countries, when they are used to dealing with the EU as a single bloc.”

“They are calling us in a panic because their goods have been stopped and they don’t know what to do,” he said. “They have become fearful about trading so are stopping shipments until they have a resolution.”Advertisement

The UK is no longer part of the single EU VAT area, which means the sales tax is now collected by each country. Bills must be settled up front by the buyer, with a lack of preparedness on the part of exporters and purchasers resulting in shock demands for payment at the border in recent days.

Many small firms are having to consider registering for VAT in multiple jurisdictions for volumes in sales that are often relatively low, according to the FSB, which said the extra administrative burden could be off-putting.

Phil Ward, managing director of Bristol-based firm Eskimo, which sells designer radiators for up to £4,000, said he is considering moving some of its manufacturing to Poland to stay competitive. Brexit had dealt his business a blow, because the EU accounted for 25%-45% of its sales.

Eskimo has not exported anything so far this year as its main distributor has been unable to find a carrier willing to take the job.“We are the only designer and manufacturer of posh radiators in the UK – everything else is imported from Turkey or Italy,” said Ward, who is concerned it is a “hell of a lot more difficult” for EU buyers to deal with a British company than its main rivals, which are based in Italy.

Leaving the bloc also means UK firms can no longer take advantage of the VAT triangulation scheme, which makes cross-border trade easier between EU countries.

David Lee, managing director of Torqueflow-Sydex, an engineering company, said it is now charged VAT at 22% on goods manufactured by its Italian sister company, which are then sold to another EU country, because it is a UK entity.

“This is adding 22% on to our costs, which in a competitive market is an absolute killer,” said Lee. His company’s options include routeing shipments via the UK or registering as a tax entity in every EU country it trades with.

“I’ve been in the industry for over 30 years, working with Australia, Russia and the Middle East – this just makes everything look a joke,” he said.

By Zoe Wood and Caroline Bannock