January 2024 will mark four years since the UK officially left the European Union (EU).
As the United Kingdom embarked on its journey to exit the EU, a myriad of challenges and opportunities unfolded, especially for UK entrepreneurs.
One of the most significant aspects of Brexit was tax and trade, and the implications were often challenging for start-up and entrepreneurial businesses.
The UK’s departure from the EU’s customs union and single market has specifically led to changes in the VAT system and increased complexity in cross-border trading.
In this article, we outline some of the regulatory changes that have occurred in recent years and some strategies your business can use to mitigate their impacts.
VAT regulations
Perhaps the most immediate impact of Brexit on entrepreneurs was the change in VAT regulations.
Previously, businesses trading with EU member states enjoyed the simplicity of intra-EU transactions, often requiring minimal customs paperwork and without VAT implications.
UK businesses, however, are now treated as “third country” entities when trading with the EU.
As a result, VAT now applies to imports and exports to most European countries.
This change has presented entrepreneurs with new challenges, such as increased administrative requirements and potential cash flow implications.
The Northern Ireland Protocol
For businesses operating in Northern Ireland, the situation is unique and even more complicated.
The Northern Ireland Protocol, designed to avoid a hard border on the island of Ireland, means that Northern Ireland continues to follow EU VAT rules for goods.
This has created a complex scenario where businesses in Northern Ireland must navigate both UK and EU VAT systems.
This is something that our tax advisers at SMCO can help you understand in more depth.
Strategies for managing VAT and tax challenges
Here are some essential things to consider when looking at the challenges that have emerged since Brexit.
- VAT registration in EU countries: For UK entrepreneurs with significant trade in the EU, it may be beneficial to consider VAT registration in EU member states where they conduct business. This can help streamline VAT compliance and reduce potential complications in cross-border trade.
- VAT deferral schemes: The UK introduced postponed accounting for VAT on imports, allowing entrepreneurs to account for and recover VAT on their VAT return, rather than paying VAT upfront at the point of entry. This scheme helps with cash flow management and gives your business more liquidity in harsh economic conditions.
- Supply chain optimisation: Entrepreneurs should evaluate their supply chains and distribution networks, looking for ways to minimize customs delays and reduce transportation costs. Shifting suppliers or using bonded warehouses could be viable solutions to the increased tax liabilities that your business may now be facing.
Seek Professional Advice
Brexit has ushered in a new era for UK entrepreneurs, bringing both challenges and opportunities.
Understanding the implications of EU taxes and VAT after Brexit is essential for businesses looking to thrive in this changing environment.
This is why seeking advice from experienced international tax advisers can help entrepreneurs make informed decisions and remain compliant with tax regulations.
By implementing sound strategies and seeking expert guidance, UK entrepreneurs can adapt to the new landscape, manage their tax obligations, and continue to grow their businesses successfully in the post-Brexit era. If you are concerned about your business’s tax liabilities post-Brexit, please do not hesitate to contact one of SMCO’s expert international tax advisers.
