The UK is set to leave the EU on 31st March 2019. The UK will also leave the EU VAT regime, which could result in traders facing major costs and new admin requirements.
The UK’s exit from the EU will come at the end of the two-year notice period begun by triggering by Article 50 of the Lisbon Treaty. This deadline is only 12 months away, and there is no sign of a trading agreement; therefore it needs to be extended.
It looks likely that to give both EU and UK businesses time to adjust to the UK’s exit, a 21-month period will be agreed to, commencing after 31st March 2019.
This means that all UK businesses will find themselves outside of the single market and customs union in 2021, and simultaneously they will also exit from the EU VAT regime. This is a threat to thousands of EU and UK trading businesses.
A recent survey of e-commerce companies that sell into the EU has revealed that more than 27,000 small e-commerce companies will have to spend more than £720 million each year in new VAT compliance charges if they wish to continue selling into the EU.
The UK wanted a 24-month transition period, but the EU has only offered a period of 21 months, and it looks likely that the UK will have to accept the compromise, though negotiators will probably try to win concessions such as the right to negotiate free trade agreements with other countries at an earlier date. A hard Brexit will make matters more difficult.
VAT changes will have a significant impact on small traders, who will have to register for VAT in each EU country that they wish to sell into. EU products will attract a 20 per cent import VAT bill, which means more administration.