Small Businesses Could Face VAT Shock Under EU Withdrawal Plans

LONDON (Alliance News) - Campaigners have warned of a VAT shock for small businesses if ...

Alliance News 27 December, 2018 | 1:08PM
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LONDON (Alliance News) - Campaigners have warned of a VAT shock for small businesses if Parliament approves UK Prime Minister Theresa May's EU Withdrawal Agreement in a vote next month.

Proposed changes to EU rules would reduce the threshold for small business exemption from charging VAT from an annual taxable turnover of GBP85,000 to GBP76,700.

The People's Vote campaign for a second EU referendum said the change would force hundreds of thousands of traders to slap VAT on their products and services for the first time.

A little-noticed parliamentary report, released on Christmas Eve, warned if the Withdrawal Agreement is ratified and the changes to EU directives go through, the UK would be forced to lower the threshold even if Brexit has happened.

The report, by the Commons EU Scrutiny Committee, said the UK will lose its veto over any change if it leaves the EU as planned on March 29.

But under the terms of the Withdrawal Agreement, Britain will be required to implement the directive at least until the end of the proposed transition period, which could last until December 2022.

The "backstop" arrangements in May's deal could require Northern Ireland to remain aligned with EU VAT law "indefinitely", meaning the new threshold could stay in place after the transition is over, the committee warned.

This would have "significant implications" for thousands of small businesses, many of which would have to charge VAT for the first time.

Under the EU's current VAT directive, individual EU countries have the option of exempting smaller companies from charging the sales tax to customers.

In the UK, the small business exemption is applied to firms with an annual taxable turnover below the GBP85,000 maximum permitted by EU law. This threshold is currently frozen until 2022.

Under the changes tabled in Brussels in January 2018, the threshold would be reduced to EUR85,000 – currently around GBP76,700.

The report stated: "Having to transpose the directive could mean that the government would be under a legal requirement to lower the VAT registration threshold for SMEs by nearly GBP10,000, as the UK limit is currently above the upper threshold of GBP76,700 proposed by the European Commission (and to which, so far, the remaining Member States have not objected).

"Any new EU legislation would, for the duration of the transition, override the UK's discretion to legislate in breach of the directive."

The committee said its concerns would not apply if the UK leaves the EU without a withdrawal agreement, as Britain would then be "free to amend or repeal elements of its VAT law" from March 30 2019.

But it warned: "Without a Withdrawal Agreement, UK exports would face the immediate re-imposition of VAT controls on goods destined for the EU, as the latter has refused to copy the UK's approach of deferring VAT controls at the border in a 'no deal' scenario."

By Andrew Woodcock, Press Association Political Editor

source: Press Association

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