VAT Changes Deliver Taxing Times For Foreign Traders and UK Consumers

As businesses in UK and Europe continue to digest the Brexit deal agreed at the end of last year, lawyers at Irwin Mitchell have warned that changes to cross-border VAT rules are one example of post-Brexit arrangements having unforeseen consequences for business and consumers alike.

Foreign firms must now register for UK VAT for items sold for under £135, a change that has led to some suppliers refusing to trade with the UK altogether and delayed some orders, as online businesses and others assess their response to the new arrangements.

Irwin Mitchell is hosting a webinar on 13 January to offer practical advice businesses need post Brexit, covering short term risks and uncertainties plus new legal and regulatory changes.

While not directly related to Brexit, (the government could have applied existing rules for non-EU mail order, where VAT is added as goods enter the UK) the change is seen as an opportunity to tackle fraud and VAT evasion, while ensuring UK businesses are not disadvantaged.

The concern is that firms will decide registering for UK VAT is not worthwhile given the size and value of the orders involved. Some firms have already raised prices to compensate for increased red tape, while others have now ceased trading with the UK – as UK buyers have discovered.

Viewed as an inconvenience for UK consumers who may find it harder or more expensive to source products online, the move could also impact e-commerce in the UK and those UK businesses that have EU based distribution centres.

Expert Opinion

“Regardless of a trade deal being agreed, the start of new arrangements with the EU was always going to throw up unexpected challenges for businesses and consumers to navigate and the new VAT rules are a perfect example.

“Short term consumer frustration may be a price the government is willing to pay in return for reducing VAT evasion and protecting UK interests but how far this becomes a long term issue will depend on the scale of any price rises and inconvenience, as the reality for consumers sinks in.

“It remains to be seen how many businesses will wish to register for UK VAT, while those who do will face an estimated two month long process and may conclude this is not worthwhile.

“The real litmus test of these changes will come in the long-term scale of the impact, not just on consumers, but on British businesses. In solving one problem, you risk creating another and in ensuring home firms are not disadvantaged over VAT, may unwittingly create a challenge for those UK firms, whose logistics and distribution centres are based in the EU.

“Short term consumer pain for long term business and VAT gains is one thing, but if that pain leads to ongoing challenges for British business with European networks, then we have not heard the last of this issue.” Sarah Cardew - Partner

For a clear guide on the areas that you should be focussing on in relation to Brexit, further information can be gained from the webinar on 13 January. Discover more on the webinar and reserve your place.