With the time to prepare for Brexit rapidly reducing, businesses are up against the clock to get themselves ready for the changes taking place at the end of the transition period. When the UK left the EU on 31st January 2020, the transition period began and it continues until the end of the year.
The EU and the UK, at the time of writing, are still undergoing Free Trade Agreement (FTA) discussions, and while the precise outcome of these discussions remains uncertain, we can be sure that as the UK is no longer in the single market and customs union, there will be tax changes regardless.
Understandably, most businesses have been generally preoccupied by adapting to the changing landscape that Covid-19 has introduced. This doesn’t change the fact, however, that there are a host of Brexit related tax considerations to be made by businesses. Let’s take a look at some key examples.
Customs Compliance
If your business processes involve transporting goods between the EU and the UK, you will find yourself facing more advanced customs compliance obligations. Even with a Free Trade Agreement in place, this transport of goods will now be considered as imports and exports. The EU will be implementing full border control from 1st January 2021, so any goods being exported from the UK will need to meet all the requirements from the start of the year. You will, however, be able to defer import declarations and associated duty payments, on a range of goods, until 1st July 2021.
Changes in VAT law
There will be a range of VAT law changes that are sector-specific, for example, the treatment of VAT on certain financial services will be impacted; EU businesses supplying those in the UK will be eligible for increased VAT recovery. For travel businesses, the tour operators’ margin scheme is expected to be amended so that VAT is only paid on the margin on UK holidays, and not on EU holidays. More generally, import VAT will be payable on the transfer of goods between the UK and the EU.
Tax Systems and Data changes
With the changes coming to customs compliance and VAT, there will likely be a secondary impact and indirect changes to the reporting systems and processes that businesses have in place. It will be important for these businesses to identify which systems and processes will need updating, and to make sure that they have the time and resources to get those changes made. Systems such as tax determination software, cash-flow systems and even HR processes considering expenses and mobile employees may be affected.
Each business will have a unique set of challenges surrounding Brexit, and it is recommended to seek professional advice directly before deciding to act.