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Doing Business with Europe: Getting Paid and Taxation

The United Kingdom is scheduled to leave the European Union on 31 October 2019 meaning our relationship with the EU will be changing. With the deadline marching ever closer, the Leeds City Region Enterprise Partnership, Enterprise Europe Network and the Department for International Trade recently invited businesses to attend a series of events focusing on the UK’s changing relationship with Europe and how it might affect them.

As a result, the following checklist has been drawn from the expert advice and experience of NatWest bank and accountants BDO LLP. This checklist by Leeds City Region Enterprise Partnership is designed to highlight some key points that local businesses might want consider for their own payments and tax management.

  • Make sure you are up-to-date

The situation is changing quickly and it’s important that you, and/or your finance or accounting team, have the right information if you wish to be ready for when the UK leaves the EU. There are useful checklists available, for example from the British Chambers of Commerce, the Federation of Small Business and on the websites of many of the major banks and accountants including NatWest and BDO.

  • Review your payment risks

If you are involved in importing or exporting, you should review your payment risks and assess whether anything might change in the light of the UK’s exit from the EU. This should include in particular any risk exposure in supply or export contracts.

  • Reassure any EU-based suppliers

It is possible that some EU-based companies may see UK customers as a greater risk and you may need to look at reassuring them of your ability to fulfil contracts. In any event, it would be a good idea to keep communication channels with your suppliers open, as the situation develops.

  • If looking to expand your export activity outside the EU, assess the risks

In the light of potential changes in our trading relationship with the EU, many UK companies are looking to expand their export activity to non-EU markets. If you are considering this, you should assess the payment risk levels and determine whether you might want to mitigate any increased risk by using financial tools such as letters of credit via your bank, or credit insurance (available commercially and via UK Export Finance).

  • Review your vulnerability to any exchange rate volatility

There has already been some volatility in the sterling exchange rate since the referendum vote in 2016 and it is possible that there will be more in the coming months. Monitor your position carefully and consider action to mitigate any risks if you are concerned about any impact on your costs or margins. Available strategies might include hedging or opening currency accounts. Your bank should be able to advise on this.

  • Prepare for adjustments to VAT for imports and exports

Whilst originally a tax based in EU law, VAT will continue to be levied but with some adjustments to collection for imports and exports, as and when we leave the EU. Imports to the UK from EU countries will be subject to the same formalities as imports from other countries, including VAT, but the UK Government has indicated that VAT on all imports will be collected via a new deferred system. Exports to EU countries will be liable to import VAT
on arrival and you may wish to investigate whether you need to be VAT registered in any EU markets you sell to. Companies already registered in another Member State may need to review their registration status. Other changes may include new reporting procedures to replace the existing EU Sales Lists and Intrastat.

  • If you sell online, review any VAT registration requirements

Currently, UK companies selling direct to consumers online do not need to register until their sales to each EU country hit a certain threshold. Once we leave the EU, this threshold will no longer apply and you may therefore have VAT registration obligations in EU markets. It is advised that you check what those registration obligations might be (including any requirement to use a tax representative).

  • Prepare for changes to other VAT arrangements

Other changes to VAT arrangements are likely to include withdrawal of the ability to use the simplified system for “triangulation” (supplies of goods involving parties in 3 different EU countries) as well as access to the EU VAT refund system and the “Mini One Stop Shop” (EUMOSS) service for sales of digital content. UK firms will still be able to seek VAT refunds and access a non-EU MOSS service, but this may be more complex. There will also be changes to the VAT on low-value consignments of parcels (under £135). Keep an eye on the VAT pages on the .Gov.uk website for all these changes.

  • Assess if other tax changes might affect you, especially customs duties

You should also assess whether any goods that you are importing or exporting might be subject to any customs duties if we leave the EU customs union, and build these into any pricing/forecasts/budgets (see our checklist on customs procedures for more details). Other potential tax changes may include the levying of withholding tax on dividends and interest flows between the UK and any company group members based in the EU (only 17 of the 27 countries have double taxation agreements with the UK that provide for zero withholding tax with groups). You may wish to consider your group structure to mitigate any risks.

  • If you are unsure, ask for advice

With the situation changing by the day, it’s important that you have the right information in order to be act upon it. If you are unsure, seek advice, either from accountancy/banking professionals or government helplines such as those operated by HMRC. Get in touch today.