Brexit could lead to upfront VAT payments for bike importers

UK importers will be forced to pay VAT upfront on goods imported from European Union members after Brexit, reveals the fine-print of legislation to be considered by MPs on Monday. This could impact on those bike firms which import bikes and bits from companies in the EU.

The VAT changes included in the Taxation (cross-border trade) Bill could create cashflow problems and huge additional bureaucracy. The bill was introduced in November but only now is one of the implications contained in becoming apparent.

The pro-Remain Tory chair of the all-party Treasury select committee, Nicky Morgan, said the committee would launch an urgent investigation. She also said she would be writing to the head of HM Revenue and Customs to see what contingency plans were being made to avoid hitting UK firms. This has been reported in today’s Observer newspaper.

The bill, which has its second reading in the Commons tomorrow, states that VAT will have to be paid upfront by companies. Explanatory notes say the existing regime will end “so that import VAT is charged on all imports from outside the UK."

The Labour MP Chris Leslie said that the upfront cost of such a regime was “yet another aspect of Brexit that the Leave campaign failed to inform the public about.”. He added that he would be tabling urgent amendments to ensure the UK remained in the EU VAT area, something likely to be rejected by pro-Brexit MPs.

UK companies that import parts or goods ready for sale from the EU can currently register with HMRC to bring them into the UK free of VAT. The VAT charge is reclaimed, with no actual money changing hands. VAT is added to the price of the product when it is sold to the end customer.

Unless a special VAT deal can be agreed with Brussels, importers will have to pay cash upfront for the VAT amount and then recover the money later.

A statement from the British Retail Consortium said: “If the bill becomes law without any commitment to inclusion within the EU VAT area, UK businesses will become liable to pay upfront import VAT on goods being imported from the EU-27 for the first time.”

Accordintg to the BRC this will "create additional cashflow burdens for companies, as well as additional processing time at ports and border entry points attached to the customs process. Mitigation measures could include companies instituting a revolving credit facility, or utilising import VAT deferment reliefs.

“Both measures require companies having to take out costly bank or insurance-backed guarantees, so would increase the costs of importing goods from the EU.”

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