Top bodies urge action to ward off Brexit VAT threat

The accountancy professional bodies of Scotland and Ireland have today jointly urged the UK and Irish governments to introduce legislation to ward off the VAT threat to importers' cash flows after Brexit.

The call is for a delay in when VAT is paid on imported goods after the UKs withdrawal from the single European market. Picture: Jane Barlow

A key element of the campaign by Chartered Accountants Ireland and Icas, the trade body for accountancy groups with Scottish HQs, is a call for a delay in when VAT is paid on imported goods after the UK’s withdrawal from the single European market.

The trade bodies say doing so would give many businesses in both the UK and the Irish Republic vital protection for their cash flows.

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“An often overlooked side-effect of Brexit is that VAT will become an upfront cost for imports between Ireland and the UK for the first time, if the current law is not changed,” says today’s joint statement.

“UK and Irish businesses that regularly trade with one another will face a heavy cash flow burden as they will be forced to pay VAT, along with customs duties, at the time goods are imported and then recover the costs later.”

Icas and its Irish counterpart say that as more than €30 billion of goods are exchanged between the UK and the Republic of Ireland each year this major change “will cause significant upheaval to every business involved in imports”.

At present, VAT on imports between EU countries is paid when VAT returns are filed, which in many cases can be several weeks later.

Icas and Chartered Accountants Ireland gave warning that for many traders, an upfront VAT liability “could be quite substantial and in reality could obliterate the cash reserves of a business”.

Chartered Accountants Ireland president Feargal McCormack said: “Any mechanism to minimise cash flow issues and time delays after Brexit is welcome.

“An easy to implement solution would be allowing traders some extra time to pay the import VAT due on goods coming from the UK into Ireland.

“Under the so‑called ‘postponed method of accounting for VAT’, importers would not have to pay VAT at the point of entry but instead declare the VAT in the next return filed with Revenue.”

McCormack added that there were “several existing precedents” for such legislation, and would be straightforward to bring in. “17 EU member states have already adopted this method and many have land borders with non-EU countries,” he said.

Charlotte Barbour, Icas director of taxation, said: “UK businesses currently benefit from postponed accounting for VAT when importing goods from the EU, but this could change after Brexit.

“While the UK government has recognised the benefits of postponed accounting it hasn’t yet committed to replacing it. Leaving the EU without a solution in place in either the UK or in Ireland would create cash flow costs and administrative burdens – all generated by Brexit – and none of which exist at present.”