As well as questions about international trade, declines in consumer confidence, companies pausing activity until the issue is resolved and fluctuating currency markets, the process of EU VAT refunds look set to change. This adds another layer of complication to already pressured businesses.
What impact will Brexit have on EU VAT refunds?
Various aspects of corporation tax and VAT look set to change due to Brexit, but changes to EU VAT refunds may be the one that has the most impact on the bottom line. Businesses which carry out cross-border transactions currently have little guidance on the future rules beyond the need to prepare for a revised EU VAT regime.
At the moment, the UK is part of a single refund system which allows companies to file an electronic claim that covers all 28 member states. It may be that a simplified process will be implemented for VAT refunds across the EU as part of a departure deal but there may be more of a challenge if the UK leaves the EU without a deal.
In that case, businesses may have to file claims in each relevant country within the EU and comply with country-specific deadlines, forms and requirements including applications made in the native language. Some experts warn that even if companies are up to speed with the relevant processes, payments may be slower than from within the EU.
Will there be reciprocity on VAT refunds across Europe?
This is another question that will remain unanswered until a deal is reached. The UK currently has a generous approach when it comes to refunds but there is no guarantee that other countries will follow suit. Even if they do, it may take time to negotiate each of the individual agreements. It’s clear that whatever happens in the longer term, in the short term there is a significant challenge.
If the UK leaves the EU without a deal and switches immediately to the international system, companies will need to file a final claim online for an EU VAT refund by October 30th which means time is running out. Financial specialists warn that some companies may simply write the whole matter off because the financial benefit it outweighed by the resource and administrative burden of claiming a refund.
Businesses should take expert tax and financial advice as soon as possible to understand the best approach for their organisation.
Corporation tax and other changes for businesses brought about by Brexit
EU VAT is just one area where businesses are facing uncertainty. The rules relating to corporation tax look set to change and many organisations are currently trying to mitigate eventual impact of the UK leaving the EU by second-guessing the requirements. Some businesses, for example, have opened European offices to avoid trade barriers and protect supply chains – but this comes with a whole new set of tax obligations and the risk of double or multiple taxation of profits.
In addition, it exposes a company to greater risk due to currency volatility by having revenue and costs in multiple currencies. HM Revenue and Customs do provide the latest information on the impact of Brexit on businesses, but a tax specialist would be best placed to provide the best guidance on how to develop a strategy and prepare for the UK’s departure with the EU including preparations for a worst-case no-deal scenario.
Building your business in uncertain times
EU VAT refunds and taxation are just one area of uncertainty for British businesses operating on the global scale. There is significant volatility in the currency exchange market due to the uncertainty of Brexit and sterling has been under pressure for some time.
A weaker pound has presented an opportunity for exporters to offer value overseas but the pound’s struggles may not continue indefinitely. In addition, the value of the pound has increased costs abroad and this has put pressure on the bottom line.
We help businesses manage their international revenue and costs in a range of currencies. It’s not possible to predict the outcome of Brexit or what the new tax regime or trading rules may be, but our expert team of corporate currency specialists can help companies manage incomings and outgoings across borders and mitigate the risk of currency fluctuations.