The UK and the European Union (EU) are now more than a month into their new trading relationship, following the end of the previous Brexit transitional period.
Among the changes brought by the new arrangements is the need for small businesses in the UK to register for VAT in each EU country where they sell directly to customers. UK businesses in this situation will also be required to have a physical business representative in each country, and cannot simply be a “brass-plate” company.
Businesses that still have work to do to adapt to the new rules are advised to consult our previous article on the steps they will need to take after the transition period.
However, with registering for VAT costing between £3,000 and £5,000 for each EU country, some small businesses in the UK could find themselves having to pay up to £130,000 simply for the right to pay VAT in every jurisdiction. Is there any way, then, to avoid this potentially crippling bill?
There’s hope for 1st July
Fortunately for UK businesses, 1st July will see the situation change again, when the EU introduces a one-stop-shop for VAT registration across the bloc. This will mean British companies simply having to register once to be able to pay VAT throughout the continent.
This change arose out of the EU’s continued efforts to harmonise arrangements across member states, and has no direct connection to Brexit.
Even this welcome situation, however, still leaves small B2C firms exporting from the UK to the EU with a potentially agonising – if not also business-ending – six-month gap. So, what can these firms do in the meantime to lessen the time and financial cost?
Could now be the moment for your firm to set up in Europe?
There is a possible workaround that it may be a good idea for your British small business to investigate, especially given the tens of thousands of pounds it could ultimately save you.
That solution is to establish an office in a business-friendly EU member state, such as the Netherlands, before delivering your products into the EU country through a warehouse that would then enable you to distribute goods elsewhere in the bloc.
Indeed, the Observer recently reported that this is precisely what UK government trade advisers have been telling businesses frustrated by Brexit-related charges, paperwork and taxes to do.
Predictably, however, reports have also emerged of distributors seeing the opportunity that this represents charging higher prices for the shipping of UK goods into the EU.
In short, while there is hope of greater certainty eventually emerging as to the likely long-term arrangements for moving products into Europe, it is presently an arduous and costly process for many firms.
If you would appreciate further guidance as to the situation for your own small business as you adapt to the latest UK-EU trading rules, please don’t hesitate to reach out to TS Partners today. We can provide expert tax advice and VAT services for Plymouth and Wellington companies.
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