New EU VAT rules to cost British SMEs £180m in extra red tape


UK ecommerce sellers are facing £180m in additional red tape costs as the EU imposes sweeping value added tax reforms on sales from outside the bloc, according to a consultancy.

The new rules, which will be introduced on July 1, were originally designed to stop an estimated €7bn in annual VAT fraud by non-EU ecommerce sellers, many of which are located in China. But, after the UK’s departure from the EU, British companies will also need to comply.

Small and medium-sized businesses exporting to EU customers are set to face the biggest upheaval because of the changes, which remove VAT exemptions for SMEs and shipments not exceeding €22.

About 26,000 ecommerce sellers, slightly more than 10 per cent of the UK sector, will have to register for VAT for the first time under the EU’s new “one-stop shop” system, according to tax consultancy Avalara. This will cost a majority of these companies at least €8,000 a year each, or roughly €208m (£180m) in total.

Richard Asquith, who leads on VAT at Avalara, said the EU reform was the latest example of UK companies with deep trading ties to the bloc being “buffeted by our third country status”.

“Now we’re outside of the EU, [the UK has] been lobbed in with VAT-avoiding Chinese traders, and ecommerce companies will pay the price,” he said.

David Falkner, founding director of greeting card maker Cardology, said Brexit had “stunted” his company’s EU sales growth but he still planned to “overhaul his systems’‘ to comply with the bloc’s measures, which would cost his company a fifth of its EU revenues. “It’s a barrier but it’s a surmountable barrier,” he added.

In January, the UK imposed similar VAT rules on EU companies. Falkner said he took “some really good market share off [his EU] competitors” as a result. “We’ve seen first hand just how much of an impact it can have,” he said. “Now, we are facing the same hurdle.”

Andy Mulcahy, strategy and insight director at IMRG, the industry association for online retailers, said companies would require “big changes” in order to be compliant. “The key will be ensuring the software is there to enable VAT payments at the point of sale,” he said. “It will take some time to smooth out this technology but my feeling is that after a while it will settle down.”

Before Brexit, UK-based microsellers were able to use a simplified EU scheme that enabled them to satisfy their EU VAT obligations via their annual UK VAT return, after which HM Revenue & Customs would distribute any EU payments due.

Exporters using e-selling platforms will now have three options when trading into the EU: register for VAT in the country where they sold most of their goods, which the European Commission estimates will cost €8,000; subcontract VAT to selling platforms such as Amazon or eBay; or ask the postal service to handle VAT.

Asquith recommended that, with e-platforms typically charging sellers about 30 per cent of gross prices for their VAT services, companies doing more than 150 transactions a year, which includes most of those doing business in the EU, would be advised to register themselves in the bloc.

James Sibley, head of international affairs at the Federation of Small Businesses said the commission’s import one-stop shop approach would simplify life for smaller exporters, even though it would still leave them at a disadvantage to those inside the single market.

“UK small firms will be losing exemptions for small consignments, whilst those within the bloc making cross-border sales under €10,000 a year will continue to enjoy breaks,” he said. He also urged the government to do more to ease post-Brexit burdens on small businesses.

Amanda Fergusson, chief executive of the Greeting Card Association, said the scheme posed twin challenges of new costs as well as added complexity for small businesses, which are not always well equipped to meet new regulatory requirements.

She added that several members that had been reliant on EU sales had stopped shipping to the bloc and expected the situation to deteriorate from July 1. “My concern is that a lot of cottage industries, which have the potential to grow into something a lot bigger, will be scared off exporting,” she said.

HMRC said the government was helping SMEs with the transition to a new EU VAT system through its £20m Brexit support fund, from which small businesses can claim up to £2,000 to address issues such as VAT.

Brexit Briefing

Follow the big issues arising from the UK’s separation from the EU. Get Brexit Briefing in your inbox every Thursday. Sign up here


- Advertisement -

Leave A Reply

Your email address will not be published.