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UK 35,000+ micro-businesses drawn into Brexit EU VAT net

UK 35,000+ micro-businesses drawn into Brexit EU VAT net

An estimated 35,755* UK micro-business selling over the internet into Europe face being drawn into the EU VAT net for the first-time following Brexit.  Costs to meet this new requirement could reach €216,000pa.

UK e-commerce businesses benefit from EU VAT exemption

The UK’s membership of the EU includes allowing UK-based small businesses to sell goods to EU consumers using their UK VAT number.  Generally, this exempts them from having to register for VAT in each country until their sales hit the annual ‘distance selling threshold’ in every individual state.  This threshold is either €35,000 or €100,000pa per country.  Once over this threshold, the UK seller must VAT register in each country, file VAT returns and pay local VAT.

Micro-businesses face EU VAT compliance costs of up to €216,000 per annum

On Brexit, UK small businesses will lose this threshold, and will have to VAT register in every country where they are selling - or require their customers to pay import VAT and customs duties.  The European Commission has estimated in 2016 the cost of this compliance burden at €8,000pa per country.  This could add up to €216,000pa for the EU27.

In addition, as the UK will be a non-EU member state, UK resident sellers will face the obligation to appoint local fiscal representatives in most EU countries where they are selling and are VAT registered.  This will add to costs.

Many UK micro businesses have been building-up substantial new revenues from EU e-commerce which currently comes without multiple foreign VAT returns and language barriers.  Affected businesses will have to weight up the compliance costs against the potential loss of trade.  The alternative to this new burden is geo-blocking EU customers to avoid the VAT requirements – but this mean an end to EU sales.

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VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He is part of the European leadership team which this year won International Tax Review's Tax Technology Firm of the Year. Richard qualified as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.