Despite steadily falling through 2023, consumer prices remain high. Yet for businesses trading within the EEA, several matters keep tensions elevated. These include an unstable exchange rate, complexities in securing VAT compliance, and import costs.
Amidst increasing inflation, these matters pose substantial challenges for UK firms engaged in Eurozone trade. However, these difficult times also leave room for growth.
With compliance, transparency and integrity, businesses can seize opportunities to branch into new markets. Flexibility is more vital than ever before, so it’s always worth gaining an understanding of the best ways to approach European trade.
How is rising inflation affecting UK imports?
At the end of 2020, the UK left the EU single market and customs union with the decisive outcome of the Brexit election. Now, trade with the EU is governed by the Trade and Co-operation Agreement, which places huge barriers on proceedings.
Even though tariff-free trading of goods between the UK and the EU is still allowed, several factors have triggered a heated market. The aftermath of the Covid-19 pandemic and the ongoing tension caused by conflict in Ukraine complicate the situation further.
The most pressing issue is rising inflation and its impact on import costs. Alongside this matter, exchange rate instability and complexities in ensuring VAT compliance make navigating the European market increasingly difficult for small-large businesses – and more time-consuming for larger corporations.
Which VAT challenges do businesses face for trading with the EU?
- The UK is no longer in the EU VAT area. This means that each member state independently collects VAT when selling UK goods to EU customers. UK businesses may therefore need to register for VAT in different member states.
- Businesses need an EORI number. All traders exporting and importing across the UK and EU need to apply for an EORI number. This is used throughout the customs declarations process.
- Any UK to EU goods movement is now considered an export. Most goods exports will be VAT-exempt. Only a few exceptions apply for the delivery of services.
- UK businesses can’t register for the VAT Mini One Stop Shop scheme. VAT MOSS previously allowed businesses to pay VAT to HMRC rather than registering for individual EU member states, but this is no longer a viable option.
- EU VAT applies to all digital services. If you provide cross-border digital services, always check the location of your consumers and whether they are a business entity or sole trader.
Why is VAT compliance so difficult for UK businesses?
Many businesses have started to adapt to new trading methods.
Since January 2021 and the formal effects of Brexit, any UK import VAT due on goods arriving from the EU can be accounted for by postponed VAT. This means that the import VAT can be paid and recovered retrospectively by the importer, rather than upfront at the time of transit.
But importers must also opt into using postponed accounting on each new customs declaration, which automatically generates an online postponed import VAT statement. This turns into the evidence needed to recover import VAT and can be a long, complicated process.
A significant cashflow saving can be made by recovering this as input tax on their next VAT return. But in order to do this, businesses must check when import VAT can be accounted for.
How can UK businesses maintain compliance with VAT in the Eurozone?
- Keep up to date with VAT regulations
EU regulations for import and export regulations are in constant flux.
Businesses in the UK must stay up to date with the latest changes, ensuring total adherence across all areas. This can be achieved by subscribing to relevant industry news services, attending conferences, or working closely with a VAT compliance specialist.
- Use VAT compliance software
Several types of VAT compliance software are available. These can assist businesses with efficiency and automation in compliance processes. The most innovative systems can aid with tracking VAT transactions, calculating VAT payments, and filing VAT returns.
In an international ‘cross-border’ environment, seeking robust software and VAT compliance services helps businesses to boost commerce and revenue – all while remaining compliant with vital regulations.
- Work with a dedicated VAT team
If any UK business trades frequently with companies based in the EU, an internal or external VAT team could be hugely beneficial. This team could be entirely responsible for compliance across all territories.
With the right staff training and accounting software subscription, businesses could build an internal tax department. However, it’s also viable to outsource VAT compliance to a third-party provider if resources are thinner.
Conclusion
When it comes to VAT and international cross border transactions, compliance is imperative. Importing and exporting with integrity will simplify every process in the long run, keeping a business in good stead, and maintaining smooth finance and tax operations.
