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International Trade and Indirect Tax

Managing in uncertain times

Robert Marchant, Partner, Corporate VAT
14/08/2020
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In the coming weeks, months and beyond retailers will need to manage a number of Indirect Tax points, in relation to international trade considerations. 

Supply chain challenges

Many of our clients and contacts are largely concerned about further disruptions to supply chains, both through secondary COVID-19 outbreaks and also due to cash flow issues in the supply chain resulting in business failures and stock shortages. We have already seen situations where a failure in an earlier part of a supply chain causes delays and supply problems to the subsequent parts of the chain. Companies are trying to mitigate this through diversification of suppliers and geographical origins of supplies, but for specialist products this is difficult as it is where longer-term contracts are in place.

Working capital management is a concern across the sector, especially the collection of payments from customers and for stock management. Many UK firms had increased inventory in preparation for last year’s potential ‘no deal’ Brexit which provided them some resilience to the COVID-19 supply chain pressures. Companies are now trying to balance holding enough stock to cope with disruption against the cost of cash being tied up in stock while needing the cash to pay suppliers and employees.

Brexit

In addition to COVID-19 the impact of tariff changes caused by trade wars and Brexit also weigh heavy on those running international businesses. Organisations are revisiting their Brexit preparations given it appears that the UK government is committed to completing the UK’s exit from the EU with effect from 31 December 2020.

Following the official departure of the UK from the European Union on 31 January 2020, the UK is currently in a period of transition. Negotiations are taking place to decide which form the UK’s relationship with the EU and other countries will take, in particular trading arrangements including both VAT and Customs Duty.

HMRC has recently started issuing details of the UK’s likely border and trade arrangements. This includes details of the UK Global Tariff (UKGT) which will apply to the importation of goods into the UK instead of the EU’s Common External Tariff at the end of the Brexit Transition Period (from 1 January 2021). It remains to be seen what trade deal, if any, will be agreed between the UK and EU and from when and what its impact will be for UK retailers. It is possible that a trade agreement with the EU will only be reached years in the future, leaving UK firms having to transition to a new set of rules for 1 January 2021 and then to a further new set of rules sometime in the future.

At the time of writing there is around 100 days for retailers to prepare for these changes. The sooner steps are taken to manage the transition, the smoother it is likely to be. Crowe is here to assist with these changes, with access to Crowe Global member firms across the EU who can provide local input from the ‘EU side’ as required. Actions retailers can take to understand the VAT and customs duty implications for their supply chains include:

  • obtain importer ID numbers (referred to as EORIs) to allow the importation of goods into either/or the UK and EU
  • map legal and physical supply chains to understand the impact of Brexit on the business, including the position of its suppliers and customers
  • confirm commodity codes and Customs processes for handling export and import declarations
  • protect EU VAT recovery
  • review EU VAT registration requirements including the need for fiscal representation.

Other VAT changes

Brexit is not the only reason the VAT treatment of retailers’ supply chains may change. There are new EU wide VAT rules for e-commerce that were due to enter into force on 1 January 2021 but now moved back until 1 July 2021(because of the coronavirus) which will abolish the individual EU Member State’s VAT registration thresholds for distance sales.

As a result, the supplier will have to pay VAT in the Member State of the consumer from the first distance sale, unless a simplification for small entrepreneurs applies. To alleviate the need for multiple VAT registrations across the EU, a ‘One Stop Shop’ registration scheme can be applied to declare and pay the VAT to the Member State where the VAT is due. It remains to be seen whether UK retailers selling to consumers in the EU will be able to benefit from this registration scheme.

How we can help

Our VAT department can help organisations to understand the VAT and customs duty consequences of their legal and physical supply chains, which is a critical step in understanding the likely impact of Brexit and the preparatory actions that should be taken.

To find out more about how our Retail team can help support your business, please contact Jeremy Cooper.

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Webinar: Getting ready for Brexit

Rob Janering, Director, VAT looks at the latest developments with Brexit, its impact on customs and the key takeaways.

Available on demand

Contact us

Robert Marchant
Robert Marchant
Partner, VAT and Customs Duty services
London
Jeremy Cooper
Jeremy Cooper
Partner, Head of Retail
Thames Valley