Responding to Treasury Select Committee Chair Nicky Morgan and Labour MEP Mary Honeyball’s concerns about potential changes to the way Value Added Tax (VAT) is collected in the UK after Brexit, Mike Cherry, Federation of Small Businesses (FSB) National Chairman, said:
“Brexit should be seen as an opportunity to reduce, not increase, the huge administrative burden that the VAT regime places on small firms. Our members say VAT is the most time-consuming tax to manage, with registered small firms spending more than a working week a year complying with their VAT obligations on average.
“If we move to an environment where small firms are forced to stump up for VAT on products bought from the EU before having the chance to recover those costs through their own sales, that could create real cash flow issues and add further complexity to the system. Small firms are already having £18 billion withheld from them due to the late payment crisis.
“Of course, the decision to leave the European Union does not necessitate change for the worse. As the Office for Tax Simplification rightly points out, the fact that VAT rules are largely prescribed by the EU means leaving the Union could mark a chance to make the tax easier to navigate.
“Maintaining frictionless trade with the EU needs to be the top priority for Brexit negotiators. Nine in ten small firms that do business internationally have ties to Europe. Agreeing a time-limited transition period for the years after the UK’s withdrawal from the EU is absolutely vital to providing these businesses with some stability.
“We look forward to working with the Chancellor on the VAT consultation announced at the Autumn Budget to help reform a tax which currently places huge administrative burdens on small businesses.”