Scottish businesses may face serious cash flow problems in the event of a no deal Brexit, according to Scottish accountants and financial advisers French Duncan.
The firm is warning that many Scottish businesses are unprepared and unaware of the potential changes to VAT regulations which will occur from 29th March 2019 if there is a no deal Brexit and need to ensure their businesses are Brexit ready in the next few months.
If the UK leaves the EU without a deal being struck, all imported goods are subject to VAT which poses potential cash flow problems for business owners.
Maria McConnell, VAT director with French Duncan, explained: “We now have a proposed deal for Brexit but there remains considerable uncertainty over whether this will get through Parliament. However, whether this deal is accepted, or a no deal occurs, the position on VAT will change either way when we leave the EU.
“All EU imported goods, in line with the processes that already exist for non-EU imports, will become subject to VAT the time of import. Even if we remain within the existing customs union, or a version of it, VAT will be chargeable on all goods entering the UK and, of course, Scotland. The Government plans to introduce a simplification measure called postponed import VAT accounting to mitigate against potential VAT cash flow problems, but it is unclear how this will work in practice.”
“If the existing certification requirements in relation to the recovery of import VAT are to be extended to EU imports, then there may still be cash flow delays even under the proposed postponed accounting procedures. This is because a paper certificate is issued by HMRC via post, after the goods have entered the UK. At the moment it is not clear if there are plans to move this certification to a digital service in line with the up and coming Making Tax Digital requirements.
“Scottish businesses should be aware that utilising the postponed accounting procedure may require them to hold appropriate HMRC certification before being allowed to recover this VAT as input tax on their returns and this may push input tax recovery into the next VAT return period which, for many companies dealing with multi-million-pound imports, may cause severe cash flow problems.”
Ms McConnell continued: “Depending on the eventual outcome of the Brexit negotiations there may be additional costs for Scottish businesses which import raw materials or other goods due to potential delays at the ports on those goods entering the UK, due to extended Customs procedures and, in some eventualities, the addition of Customs Duty. This could hit all sectors but particularly those reliant on importing large quantities of goods such as manufacturing and engineering sectors, as well as the renewable energy sector which often sources large turbine parts from across the EU.”
“However, there are solutions available to businesses to mitigate the potential impact of Brexit, but business owners need to act now ahead of any changes coming into force. For example, there are approved customs storage and processing regimes which can aid cashflow. Importers and exporters seeking fast-track clearance or a reduction in security or guarantees can seek Authorised Economic Operators (AEO) status although this can be a lengthy process, but these measures may be beneficial in the long term to reduce clearance and processing issues.”
Ms McConnell added: “The way in which VAT will be applied to EU cross border transactions is likely to change to some degree, whatever the outcome of the Brexit negotiations, so business owners need to start making suitable preparations to deal with this. Given that these changes will also coming alongside HMRC’s Making Tax Digital initiative there may be lot of new systems and procedures which business owners will need to implement in the coming weeks if they are to avoid potentially costly mistakes come the Spring of next year.”
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