UK to leave the Single Market – the impact on VAT

Following the Prime Minister’s speech yesterday (17 January 2017), we now know that the UK will be leaving the Single Market as a direct consequence of its desire to control the movement of people, but will be seeking to negotiate deals on tariffs and a customs agreement. If successful, these could reduce both the financial costs of importing / exporting and the associated administrative burdens. If the UK is successful in agreeing a customs union with the EU (for example, like Turkey) it would mean that neither side would impose tariffs on the other’s goods, and would have a co-ordinated approach to setting tariffs for countries outside of the union. The downside is that the UK would not be free to set its own tariffs in independent trade deals with non-EU countries.

Without a customs union or at minimum some sort of agreement on tariffs, then the cost, complexity and administration associated with import duties, is likely to be a real problem for businesses trading with the EU.

For VAT, the impact is largely administration and VAT cash-flow, whereby import VAT will have to be funded at importation before it can be reclaimed on the VAT return, something that could take up to four months.

If you would like further information on the above, please contact Nick Warner.

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