With Brexit, the cross-border VAT environment will change. What practical measures can businesses take to ease the transition and minimise risk before new arrangements come into force?
When the UK leaves the EU, the cross-border VAT environment for businesses will change.
Performing a VAT health check now will highlight practical measures that businesses can take to ease the transition and minimise risk before new arrangements come into force. Nicholas Hallam, chief executive of Accordance, outlines five key action points to set up UK businesses for post-Brexit success.
In the wake of the EU referendum result, tax authorities may take a hard line with UK businesses that are non-compliant. There is now a limited amount of time for the authorities to collect revenue from UK companies through current channels, and we therefore expect them to be looking to collect as much as possible before the country exits the EU.
A VAT health check can give you peace of mind that your business is fully compliant, to ensure that the risk of large fines and penalties is minimised. If errors are found, then steps can be taken to remedy the position in an efficient manner.
A VAT health check can help you to understand which companies, out of those that you deal with, either directly or by association, are EU VAT registered. You can then confirm the status of other parties, which is necessary because those statuses will influence VAT treatments.
This is important as today’s supply chains can involve multiple movements of goods across several different borders with many parties involved. Understanding those is critical in order to ensure that VAT registration obligations are met.
A health check can safeguard you from creating VAT issues for your customers, which can adversely affect your commercial relationships.
It’s a good idea to discuss with your trading partners whether their supply plans have to change post-Brexit. This is significant as changes made by your business will have consequences for those partner, just as their changes will affect you. Working together from the outset should help to avoid any potential negative consequences.
Post-Brexit, the UK will not have access to the EU Refund Directive and will instead have to rely on the 13th Directive VAT claim mechanism. This is the process that allows for a business established outside the EU to recover EU VAT. This mechanism is more complex, subject to additional conditions (such as needing original invoices to substantiate claims) that change on a country-by-country basis, and involves different time limits for making claims. Being able to smoothly transfer to the new recovery method will be important so as to maintain existing VAT recovery levels.
A Brexit VAT health check can give you confidence when planning the future of any facilities you currently operate within the EU, and help you implement any required post-Brexit plans.
Will you continue to keep offices, manufacturing plants or warehouse space in these countries and, if you do, what will be the consequence of this? Undertaking a review now will help you to make those decisions down the line once more information is available.
Nicholas Hallam is chief executive of Accordance.