Brexit cost for small businesses
Following Brexit, the distance sales thresholds will disappear and UK e-retailers could have additional compliance costs.
In a survey of 989 small e-retailers the estimated cost per company of new EU VAT registration and returns obligations could amount to €28,568 p.a. for each business. An estimated 27,040 UK small companies selling goods online across the EU could face an annual £772 million VAT compliance bill after Brexit.
Currently, most small e-retailers, selling goods on their own websites or through Amazon or eBay, do not have to register for VAT in other EU Member States if their local sales are under the distance sales registration threshold. This means they are not required to VAT register in each EU country where they are selling but can instead charge UK 20 per cent VAT and pay the tax collected to HMRC.
Once over the national VAT distance sales selling thresholds, ranging between €35,000 to €100,000 p/a, they must register for local VAT in each Member State they exceed the threshold in, which could mean maintaining 28 different VAT registrations!
Following Brexit, UK companies will lose this relief, and even the smallest e-retailers could have to register for VAT in any Member State they sell goods in. They will instead have to immediately register for VAT in each Member State where they are selling goods and submit monthly VAT returns wherever they are registered.
Small UK e-retailers could be hit by new administrative hurdles and costs in order to continue trading within the EU unless an agreement on this issue can be found. This may prove off-putting, and lead to geo-blocking of customers from mainland Europe.
None of the future trading relationships so far raised by the EU or UK in the Brexit negotiations have included retaining this relief for online merchants. However, a possible solution could be to follow the MOSS regulations for the sale of on-line digital products and have one central VAT registration covering all EU Member States, rather than registering for VAT in each country the business sells into.
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