Businesses will not take immediate VAT hit on UK imports post-Brexit

The Government has introduced a measure that will allow Irish companies importing from the UK post-Brexit to forego the VAT payment until making their returns.

Once the UK withdraws from the European Union, in trading terms it will become "a third country". This will affect the tax treatment of goods sold between businesses in Ireland and the UK post-Brexit.

Business groups complained last month that the Government had failed to include a measure in proposed omnibus legislation for a crash-out Brexit published in December that would have forced companies to pay import VAT on goods brought in from the UK at the time of importation rather than when they file their bimonthly VAT returns.

Minister for Finance Paschal Donohoe announced a change to that last week, introducing postponed accounting for VAT on UK imports post-Brexit. This will allow companies to hold the VAT payment until they make their returns.

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“I believe this is an important measure and will go some way towards alleviating the cash flow impact on businesses as a result of the UK withdrawing from the EU,” said Mr Donohoe.

The Department of Finance said continued qualification for the Brexit-related relief measure would "depend on Revenue authorisation from a later date to be agreed subject to criteria to be set out by Revenue".

A company importing goods from the UK post-Brexit subject to the full VAT rate would have had to pay VAT of €23,000 on goods worth €100,000 at the time they were imported.

Delay

Given the potential six- to eight-week delay in filing bimonthly VAT returns – and the four- to five-week wait for a VAT refund after that – businesses would have faced severe cash flow issues without the change.

The department said the measure was “expected to incur a once-off exchequer cost” as it would apply on all imports from third countries. It could not put a precise estimate on the cost but said it would be “merely in cash-flow terms”.

Ivor Feerick, a tax partner at BDO, said the cash flow impact for the exchequer was likely to be "significant" as the State would lose out on the immediate payment of VAT on importation.

While the proposal was “very good news for business… sadly it will not necessarily be good news for exchequer cash flows,” he said. “The cash flow impact will move from the trader to the Government.”

Glenn Reynolds, tax partner at KPMG, estimated that businesses would avoid funding an additional import VAT of more than €2 billion year if half of the €19 billion worth of goods imported into Ireland from the UK in 2017 were subject to the standard rate of import VAT.

“This effectively mirrors the current rules for trading in goods with the UK and will ensure a status quo for most businesses,” he said.

Mr Reynolds said many EU member states such as France, Belgium and the Netherlands already apply these simplified import VAT rules. Last week HM Revenue & Customs in the UK announced a similar measure for businesses importing goods into the UK post-Brexit.

Revenue figures show urge in trader numbers

The number of companies preparing for Brexit continues to increase rapidly as figures released by Revenue show a surge in the number of traders applying for customs registration numbers to be able to continue to trade with the UK post-Brexit.

More companies applied for Economic Operators Registration and Identification (EORI) numbers, a requirement for trade with non-EU countries, in the first five days of this month than in the whole of last month. Revenue said there were 479 EORI registrations in the five-day period, compared with 384 in January.

There were 301 registrations in October 2018; 436 in November and 302 in December, compared with an average of 209 a month over the previous nine months.

Revenue has written to 70,000 small companies in the past week warning them to act immediately to protect themselves from a “very real and possibly significant” threat to their businesses from Brexit.