Brexit – Increased Costs and Complexity for VAT and Customs

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Author: Richard Asquith, VP of Global Indirect Tax, Avalara

 

The UK’s vote on 23rd June to leave the European Union (EU) has caught governments and businesses by surprise.

Not only was there no planning for post-Brexit trading models, but it is now clear that nothing is likely to emerge for many months or even years.

 

What is almost certain is that eCommerce to and from the UK faces an increased VAT and customs compliance burden, plus an increase in costs.

 

Exiting the EU single market means new tariff costs
The Brexit vote was largely driven by worries around EU immigration into the EU. To take back control of immigration, the UK will almost certainly have to leave the EU’s single market. This means an end to the right of eCommerce merchants to sell goods across EU borders without tariff charges or customs checks; most goods would face customs levies of around 3%. In addition, there would be a deluge of new import documentation requirements, which would hamstring small businesses in particular.

 

Brexit Single Market Tariff Costs

 

Increased tax bill on leaving EU VAT regime
Brexit entails the UK leaving the EU VAT regime. Ecommerce merchants would forfeit a range of VAT reporting and payment reliefs as a result. Sellers of goods would lose the distance-selling thresholds, meaning they would have to VAT-register immediately in any EU country as soon as they make their first sale.

 

This could add €5,000 per annum per EU country in costs (EU estimates). Providers of digital services (e-books, streaming video or games, software, etc) to consumers would lose access to HMRC’s simplified Mini One Stop Shop (MOSS) reporting system. This would entail them VAT-registering in the EU to make the filings and returns, as they do today through the UK.

 

Remain calm and carry on trading
The details of the above risks will not be fully determined until the UK can define and negotiate its Brexit plan with the remaining 27 member states. This is unlikely to be concluded until 2020 or later. Until then, nothing will change, so eCommerce sellers should not panic and stay focused on growing their businesses.

 

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