With the EU VAT reform, UK businesses could have reaped billions

A year after the changes, tax directors claim that an earlier introduction of EU VAT reforms could have increased UK exports to the bloc by almost 11%.

If VAT reforms had been put into place six months earlier, UK businesses could have earned £5.2 billion ($6.25 billion) from exports to EU markets, according to tax directors.


Tax authorities should do more, according to Alex Baulf, senior director of global indirect tax at the UK-based tax technology company Avalara, to avoid keeping companies in suspense while waiting for regulations to be implemented.


"Businesses should not be waiting for national tax authorities to implement legislation but should start to prepare [businesses for the changes] based on EU legislation, regulations, and guidance," advises Baulf.


The remarks follow the publication of a research report by the Centre of Economics and Business Research (CEBR) and Avalara in March and come one year after the introduction of the EU e-commerce VAT reforms, in July 2021.

The research center discovered that the early implementation of the simplified EU VAT e-commerce rules could have increased incomes for UK exporters by an average of 10.8 percent. These regulations lessened the complexity of cross-border taxes for business-to-consumer (B2C) transactions.


Instead of relying on businesses or their advisors to interpret the law, according to Baulf, tax authorities must make sure that they prepare concise and practical guidance for businesses to follow.


The Import One Stop Shop (IOSS), a web-based system created by the EU reforms, allows e-commerce companies operating outside the bloc to report and pay VAT on B2C transactions. The customer experience has been enhanced while the cross-border trade between the EU and the UK has been made simpler by this system.


Many companies that export goods to the EU find the post-Brexit red tape to be a pain. More compliance and administrative requirements have been added as a result of the change in the UK's relationship with the EU bloc.


These rules have made it challenging for businesses to successfully do business with EU clients. Businesses have been under a lot of stress as a result, and some have decided that it would be better to alter their supply chains in order to reduce the compliance burden.


The Northern Ireland Protocol has benefited the Republic of Ireland and Northern Ireland, which together have seen a €4 billion ($4.1 billion) increase in two-way post-Brexit trade.


This appears to be primarily at the expense of British suppliers who have been hindered by mountains of paperwork in their trade with the EU.


Moving goods across the Irish-UK border has proven to be a significant administrative burden for the company, according to the tax director of a telecommunications technology company in London.


Following Brexit, many businesses have expressed their dissatisfaction with the growing customs and duties red tape. Delays in getting products to customers are the result of this.


Brexit has created new VAT and indirect tax challenges, according to another tax director at a toy company in the UK, which did not exist when the UK was a member of the EU.


"VAT isn’t a biggie from our perspective, it’s more the customs and duties and the border stuff."


According to Peter Williams, a partner in indirect tax at the London-based consulting firm RSM UK, the UK's decision to leave the EU's customs union and single market at the conclusion of the Brexit transition period on January 1 2021 is the main cause of cross-border tax complexity.


According to Williams, "leaving the EU bloc has led to both import VAT and customs duty being inserted into supply chains between Great Britain and the EU."


According to him, the EU never intended for the new e-commerce regulations to make it easier for non-EU sellers to conduct business. These regulations were created to stop what was thought to be EU VAT leakage, close the tax gap, and make sure taxes were collected from online merchants based outside of the EU.


According to the CEBR report, the introduction of the EU e-commerce VAT reforms has relieved some pressure on businesses, as evidenced by the 94 percent positive response to the regulations.


There still seem to be some businesses that have not yet benefited from the streamlined export process, despite the fact that some are optimistic about the new regulations.


According to CEBR, 23% of the businesses surveyed are still uninformed about the streamlined IOSS.


According to Baulf, "firms need to be proactive and get on the front foot to manage risks associated with the changing complex indirect tax landscape."


Businesses can take steps to manage the tax risks connected to cross-border compliance. These include hiring tax advisors, implementing horizon scanning strategies to track potential changes in international tax laws, and investing in automated technology processes.


These measures can be used by businesses to stay ahead of developments from the time problems are identified through the legislative process.


According to Baulf, "many large multinational firms with more mature tax functions are starting to develop their own tax risk registers, identifying possible risks associated with external factors, including legislative change."


Due to their ability to adopt a proactive rather than a reactive strategy in response to shifting market conditions, businesses are given an advantage over their rivals.


Companies should be able to perform their own mini-impact analyses to determine how potential changes will affect their daily operations.


These may involve data impact analyses, system modifications, and ensuring that internal decision-makers are prepared to approve budgets for any necessary investments.


The awareness of IOSS and the EU VAT reforms is another crucial factor in ensuring that more UK businesses can benefit from them. To benefit from the advantages, not enough businesses are aware of the IOSS.


The EU still needs to raise business awareness of the IOSS and its advantages. According to the CEBR report, about 23% of businesses in the UK continue to claim that they are not familiar with the mechanism.


The three countries with the highest IOSS registration numbers, the UK, the US, and China, may not be the only non-EU nations included in any promotional campaign.


According to Baulf, "the EU should proactively engage with national tax and customs authorities, postal operators and freight and courier companies worldwide."


However, for those just starting out or registering for the first time, the IOSS registration process can seem overwhelming.


Typically, this entails selecting a middleman, obtaining a registration code to begin collecting tax at the point of sale, and determining how the IOSS number should be stated on the import declaration. It also involves completing the return submission and payment process.


While working to boost revenue for the bloc, the EU could do more to raise other nations' awareness of its IOSS.


The EU needs less tax complexity to increase revenues in the wake of the pandemic as fears of a recession spread across the continent. Businesses in the UK have learned the hard way what could be at risk if tax authorities fail to put regulations into place quickly and effectively.

By fLEXI tEAM