Brexit has introduced significant changes to the way UK businesses operate, particularly in relation to accounting and tax rules. Since the UK officially left the EU on January 31, 2020, businesses have had to adapt to a new landscape in terms of customs, VAT, trade agreements, and more. Understanding these changes is crucial for business owners and accountants to ensure compliance and avoid costly mistakes.
8.1 VAT on Goods Traded Between the UK and the EU
Before Brexit, the UK was part of the EU’s Single Market, meaning businesses could trade goods with EU countries without paying VAT. However, since leaving the EU, businesses now need to comply with new VAT rules when importing or exporting goods to and from the EU.
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Exports to the EU: Goods exported to the EU are subject to VAT at the zero rate, meaning businesses do not charge VAT on these sales. However, businesses must still keep accurate records and ensure that the goods leave the UK, as this documentation will be required by HMRC.
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Imports from the EU: When importing goods from the EU, UK businesses now need to pay VAT at the applicable rate (20% for most goods). This applies to both businesses importing for resale and those bringing in goods for their own use. Additionally, customs duties and border checks now apply to goods coming from the EU.
These changes have added complexity to VAT reporting, as businesses must now keep detailed records of goods sold and bought across borders, ensuring they comply with both UK and EU VAT laws.
8.2 Changes to Customs Procedures and Documentation
Brexit has introduced new customs procedures for businesses trading with the EU. UK businesses must now complete customs declarations for goods entering or leaving the UK. This includes:
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Customs Declarations: Goods moving between the UK and EU now require customs declarations, which businesses must submit to HMRC. These declarations provide information on the nature of the goods, their value, and the country of origin.
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Customs Duties: Some goods imported into the UK from the EU are subject to customs duties, depending on the nature of the product and its classification in the Customs Tariff.
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Rules of Origin: To avoid customs duties on EU exports, businesses must meet the rules of origin requirements, which ensure that goods originate from the UK or EU. If the goods are deemed to have been made outside these areas, they may be subject to tariffs.
8.3 Impact on Trade Agreements and Tariffs
Brexit also led to changes in the UK’s trade agreements with non-EU countries. The UK is no longer part of the EU’s free trade agreements, so businesses that previously traded with non-EU countries under EU agreements may need to negotiate new trade deals.
For example, the UK has signed trade deals with countries like Japan, Canada, and Australia, but businesses must ensure that the terms of these new agreements are considered when trading internationally.
Additionally, the UK is no longer part of the EU Customs Union, which means that UK businesses face tariffs and other restrictions when trading with EU countries. As a result, businesses need to factor in the additional costs associated with customs duties, documentation, and potential delays at borders.
8.4 Accounting and Reporting Adjustments
Brexit has also impacted accounting and reporting requirements for UK businesses. Accountants need to be aware of changes in how businesses report VAT, customs duties, and international trade. For example:
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Customs Duty Reporting: Customs duties and VAT on imported goods now need to be accurately tracked and reported in business accounts.
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Brexit-Specific Tax Reliefs: Certain tax reliefs, such as the VAT relief for exports, have been affected by Brexit, and businesses need to ensure they are applying the correct reliefs in their VAT returns.
8.5 Currency Fluctuations and Impact on Profits
Since the Brexit referendum in 2016, the value of the British pound has fluctuated significantly. This volatility can impact businesses that trade internationally, as currency exchange rates may affect the cost of importing goods and the value of overseas sales.
To mitigate the risks of currency fluctuations, businesses may choose to use hedging strategies or foreign exchange contracts. Accountants can help businesses manage currency risk and ensure that exchange rate fluctuations are correctly accounted for in financial reporting.
Conclusion
Brexit has had a profound impact on UK business accounting, especially in terms of VAT, customs, and international trade. Businesses need to adapt to new customs procedures, VAT rules, and trade agreements. By staying informed about these changes and seeking expert advice, businesses can ensure compliance and avoid costly mistakes. As the UK continues to navigate its post-Brexit relationship with the EU and the rest of the world, it’s essential for businesses and accountants to stay up to date with the latest regulations and make the necessary adjustments to their accounting practices.