Customs red tape after Brexit will make UK taxes more complicated

According to tax directors, post-Brexit customs red tape has resulted in considerable financial expenses for UK firms and harmed those relying on EU cross-border commerce.

According to tax experts, post-Brexit customs tariffs have had a severe financial impact on firms by raising the complexity of tax compliance required for cross-border commerce with EU nations.

Following the release of a report by the Centre for Economics and Business Research (CEBR) and Avalara, a tax technology company, indicating that UK exporters lost £47.6 billion ($59.7 billion) in revenue due to the EU-UK cross-border tax complexity, the statements were made.

In 2021, losses in the manufacturing sector were predicted at £24.4 billion.

The analysis focused on the administrative burden firms encountered as a result of unclear procedures. This consists of programmes connected to international trade rather than the amount of tax that had to be paid.

“It’s too much trouble to move goods[cross-border] …it’s a very heavy burden because of all the delays,” says a tax professional at a multinational technology company in London.

According to her, the greatest obstacle the company faced was attempting to get items through customs, where they frequently encountered complicated border clearance procedures.

“I hope that in the future, the government can consider how it’s going to simplify the process or make it more attractive otherwise it’s too much trouble,” she says.

Another tax professional at a multinational toy company in the UK says Brexit has changed the tax related dynamics with the EU. “Certainly, for our business, it’s more customs and duties that have been a pain because we obviously move goods cross-border,” he says.

A fundamental advantage of the EU's single market is that it brings suppliers and buyers considerably closer together. This is ensured through a number of regulatory measures meant to eliminate trade obstacles, such as expedited tax reporting.

Transnational complexity

Brexit is without a doubt the source of cross-border complication for UK exporters. It radically altered the commercial relationship between the United Kingdom and the European Union and introduced a slew of tax laws for firms to manage.

“All of this is an inevitable consequence of Brexit. Despite the trade agreement the creation of borders between the UK and EU single market was always going to create a barrier for businesses,” says Brad Ashton, customs and international trade partner at RSM UK, a tax and audit consultancy.

CEBR projects that by 2026, cross-border tax red tape would result in a £16.1 billion loss in value for the United Kingdom, equivalent to 0.632% of GDP.

In addition, businesses have had to adapt to a complicated set of EU VAT regulations that went into effect on July 1. The objective of the legislation was to simplify cross-border tax reporting for remote sales from EU and non-EU third countries.

This method was superseded with a single EU-wide registration: the Import One Stop Shop (IOSS). Currently, 94 percent of businesses are in favour of the EU VAT changes, indicating that businesses are optimistic about the IOSS's implementation.

In fact, many British companies had to determine who was responsible for filing customs declarations and paying VAT at the border.

According to Ashton, firms must now consider an array of tax duties and administrative expenses. These expenses include customs duties, value-added tax, greater freight prices, and lengthier wait periods at the crossing.

“UK goods have become more expensive to EU customers, but there’s also been an increase in compliance costs to access duty free treatment under the EU-UK trade agreement for goods and so a lot of businesses are struggling to compete with EU suppliers,” says Ashton.

The EU's initiative to digitalize VAT and tax returns has raised the compliance burden on exporters by requiring businesses to provide more tax data. This necessitates the modernization of outdated systems and the digitization of invoices.

It is not only about manufacturing. The retail industry has been impacted by its reliance on international supply networks.

Lisa Harris, manager of international finance at Reiss, has saw her firm automate to save time on cross-border tax concerns.

“Staying on top of tax complexities has been a top priority for us as our business expands. Naturally, we feel apprehensive when we hear about any new tax changes which we need to monitor, digest and react to - since the impact could be huge if we don’t get it right,” said Harris.

“Automating some of the business processes has been critical for our peace of mind, knowing that we’re addressing cross-border tax demands efficiently and saving us hours of admin time - even as we grow into more territories,” she added.

Alex Baulf, senior director of global indirect tax at Avalara, a UK-based tax technology company, explains that not all of the challenges faced by UK businesses are the result of overseas tax compliance; the UK tax authorities have also contributed to the complexity with initiatives such as Making Tax Digital.

According to him, this has increased the difficulty of doing business across the UK-EU border and the expense of compliance. According to the study report, firms have lost an average of 16% of income on overall EU exports.

According to the findings of researchers, the expansion of UK exports has been impeded by business personnel's involvement in difficult regulatory compliance, which has also put a significant pressure on corporate leaders.

Businesses lost $386 million in gross value added (GVA) owing to time spent on tax administration chores, and $10.7 billion in non-personnel operating expenditures as a result of tax complexity.

Mitigating hazards

Despite the dismal numbers, it is not all bad news for UK exporters. The economic rebound following the epidemic has boosted business confidence. Nearly three-quarters of enterprises (72%) indicate expansion intentions into at least one more EU member state.

This optimistic outlook is contradicted by the fact that 62 percent of enterprises have lately abandoned plans to expand into an EU nation out of fear of being punished for tax noncompliance. While cross-border rules are unavoidable, firms would do well to develop ways to limit the risks of noncompliance and lengthy cross-border tax procedures.

According to Baulf, businesses may mitigate the impact of tax regulations by ensuring they are at the forefront of compliance and have a thorough understanding of the rules and procedures.

“Leveraging technology to automate some of the tax process can help give businesses peace of mind, minimise admin burden, and free up time and resources,” says Baulf.

Using the IOSS, British exporters can now record EU-wide sales of low-value items from non-EU third countries. This provides businesses with a streamlined VAT compliance gateway, allowing them to register for VAT in a single location, therefore minimising bureaucracy.

As the British economy recovers from the epidemic and confronts inflationary worries, it is anticipated that more firms would seek to Europe for growth prospects. Government and HM Revenue and Customs (HMRC) would do better to facilitate trade as opposed to obstruct it.

In addition, this will need that tax authorities on both sides of the English Channel give the transparency and certainty required by businesses. This is essential for taxpayers to resolve their cross-border tax concerns.

By fLEXI tEAM