Commenting on the passage of amendments to the Customs Bill, which commit the government to fully separating the UK from the EU VAT regime, Adam Marshall, Director General of the British Chambers of Commerce, said:

“This is the first view businesses have on what the VAT regime could be like after Brexit – and it doesn’t look pretty.

“A separate UK VAT system will create significant on-going costs for businesses trading across borders, unless special work-arounds are put in place. This change will pile pressure on Her Majesty’s Revenue and Customs, which is already contending with other facets of Brexit, plus the delivery of a new customs system and Making Tax Digital.

“Firms need to know – now, not in a year’s time – whether and how the government intends to address the potential VAT bombshell facing businesses trading with the EU27 in future. Without a more generous deferment account scheme or postponed accounting, many companies face severe cash flow issues, big new administrative headaches, and a serious loss of competitiveness.”

Under the current system, firms trading with the EU report every quarter on what they have imported and exported, with a VAT bill calculated after. Without clear facilitations, the risk facing business is the need to pay VAT at the point of each cross-border transaction, creating a significant cash flow and competitiveness problem for many.

In the BCC’s Risk Register, questions around Import VAT and Services VAT remain at a red rating.

Adam Marshall added:

“Businesses are hugely frustrated that politics and ideology – rather than real-world economic considerations – seem to be driving every twist and turn in the Brexit saga. For businesses, VAT isn’t some obscure technicality. A clear, easy-to-use VAT system is crucial for businesses to trade successfully with partners in Europe – and around the world.”