What will happen to VAT and duties if we vote to leave the EU?

In? Out? The EU Referendum Vote throws up all kinds of possible scenarios. What would happen, for instance, to VAT and duties if there is majority support to leave the European Union?

At present, the UK Government has not clarified what new trading arrangements would replace the existing free trade agreement with the EU. The EU is, remember, Britain’s largest trading partner.

So if your business manufactures or trades within the EU, what could it potentially mean for you?

Border Controls
If the UK leaves the EU, UK businesses will need to deal with border controls on an ‘as and when’ basis – such as when their supplies cross UK-EU borders. What form might these controls take? It might mean that your business will have to satisfy rules of origin or substantial increases in import duties, for example.

The UK might manage to strike a deal with the EU, similar to what Norway has done. That would make it part of the European Economic Area (EEA). Trade is free between EU and EEA countries. The importer would still need to show proof that the products being imported were made in the EU.

But say the UK could not immediately achieve this situation. That would mean import duties would apply – £10,000-worth of goods imported from an EU could attract £800 import duties and £2,000 as VAT.

Customs Unions
Another possibility is something like the Customs Union agreement between Turkey and the EU. This allows goods to be traded between Turkey and EU countries without import duties, and it includes goods that have previously been imported from other countries as well as those that come from the country of export.

Bear in mind duty-free benefits are limited to goods that originate in the UK or the EU. This applies not only to the products, but the origin of the raw materials used.

Goods would still need to undergo customs clearance when they are exported from the country where they are made and when they enter the UK, which would add to the transport costs. And the importer would need to pay VAT at the point of entry – something which does not happen at the moment.

Legal Process
If the Brexit vote carries, it is likely that businesses in the UK will have time to consider what they need to do and if their business model must change. The UK Government has published a paper – The Process of Withdrawing from the European Union. This outlines the legal process of withdrawing the timescales which would apply. The UK would have up to two years to exit the EU as far as the legalities are concerned so current EU VAT and duty legislation would remain in place.

The UK could extend the transition period after the two years, if the majority of member states approve.

Uncertainty about the result of the EU referendum is already having an impact on businesses and the currency market.

If you have any questions about this subject, please contact Botting & Co Certified Chartered Accountants today on 01903 713508.

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