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VAT and Brexit
HMRC estimated that Brexit will cost UK businesses an additional £7bn per annum in compliance costs, so the real figure is likely to be somewhat higher.
SMEs are the businesses that are less likely to be geared up to deal with significant compliance changes although it is SMEs that have taken their fair share of the brunt of Brexit VAT/duty changes.
In the lead up to the passing of the European Union (Withdrawal Agreement) Act 2020 and more recently as the end of the Brexit transitional period came and went, HMRC have issued a number of documents providing information on the VAT/Duty changes and what businesses would need to do as the UK left the Single Market and Customs Union.
You would expect that as the agency that controls and manages VAT and Customs Duty in the UK, HMRC would be able to provide UK businesses with the necessary support on VAT and Customs Duty compliance matters, especially since there has been such a long lead time to Brexit and the consequences are largely as expected, given that the Brexit we’ve been delivered is a relatively hard one, as had been anticipated.
However, it appears that HMRC have acknowledged that their guidance is not sufficient clear or many businesses, so they recently announced that funding of up to £2,000 will be made available for SMEs to obtain professional advice on the VAT and Duty consequences of Brexit.
They have also deferred the date on which fuller Brexit implementation would occur from 1 July 2021 to 1 January 2022.
On one level, this should be welcomed because it demonstrates that HMRC have at least acknowledged that businesses do need further support in what can be a very complex area.
However, it also provides further evidence that the VAT support that HMRC provide businesses, particular smaller businesses, is insufficient and that VAT rules are over complicated.
I appreciate that HMRC’s hands are tied to some extent in relation to cross-border transactions, but Brexit has presented HMRC/the government with a perfect opportunity to simplify VAT in the UK because the UK is no longer tied to EU VAT rules.
This would be long overdue and very welcome, particularly for SMEs.
Although we might not expect a major overhaul of the VAT system, there are many areas in which VAT can be simplified and I will be writing soon about potential simplification of the VAT system, but in the meantime if you require VAT or Customs Duty advice or how to apply for the Brexit advice funding, please let me or your usual ETC Tax contact know and we would be happy to discuss.
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