VAT & indirect tax
VAT and indirect taxes need careful planning as they make up an ever-larger part of the tax take
Despite the obvious problems created by Brexit, there is every likelihood that a much more complete trade agreement will be trashed out over time between the EU and the UK, and Irish companies should position themselves to take advantage of that.
“The best way to deal with the changed environment is to take a forensic approach and break it down into its different components,” says Alan McManus, Mazars VAT director. “That will help businesses reach a point of certainty in addressing Brexit related obligations while maintaining continuity with supply chains to customers. It will also help identify the opportunities which will undoubtedly arise in the period ahead.”
It is clear that the next six to 12 months will be challenging for many businesses. “Businesses will need to get to grips with the changed trading environment during that time,” says McManus. “They will slowly grow accustomed to the loss of barrier-free trade with Great Britain and the increased friction and administration involved.”
Among the biggest issues faced since January 1st has been a lack of preparedness for some businesses.
“Ireland was traditionally lumped in with Britain as a single entity when it came to serving both markets and we were accustomed to the free movement of goods,” he notes.
“Many suppliers and their customers on the two islands were surprised when they found that certain goods originating in the EU and delivered to Great Britain could not be later re-exported to Ireland without attracting customs duty owing to their failure to satisfy place of origin principles and that VAT at point of entry needs to be addressed as well.”
We may see Irish companies establish a presence in the UK to smooth their relationships with trading partners
Despite the Trade & Cooperation Agreement delivering quota and tariff-free access to other’s markets subject to conditional criteria, the UK has become a third country the same as any other from Asia or America or anywhere else in the world outside the EU. “We are working with clients to help them understand the technical complexity associated with the new environment. They are now facing tariff risk, VAT at point of entry and a massively increased administrative burden. This necessitates expert tax/customs advice on both sides of the Irish Sea to deal with it.”
Failure to address these issues can lead to impaired relationships with customers due to late delivery in supply chains, disruption or non-delivery goods. Suppliers and business customers who traditionally only operated between Ireland and the UK are also having to deal with incoterms for the first time.
“Incoterms (International Commercial Terms) set the terms of trade between parties and many business customers are insisting on 'delivery duty paid' (DDP) terms, where the supplier has to look after all customs declarations as well as any duty, VAT or other tax payments that may be due,” McManus points out. “That places additional costs on suppliers together with other tax compliance obligations and can erode margins to the point of disappearance.”
While customs duties may not be payable there is still a cost associated with the customs declaration process – between €50 and €100 for each declaration where an agent is used. That might be affordable for shipments to and from Asia and the US where volumes aren’t that significant but the scale of the trade relationship with the UK would see it mount up very quickly. This cost must be picked up, whether absorbed by the supplier or passed to the customer.
Rules of origin represent another challenge. “When determining the country of origin of goods, you have to look at their contents and there are rules around the proportion which can come from outside of the UK or EU,” says McManus. For example, that has led to UK manufactured flour being subject to duty when exported to Ireland due to its relatively high Canadian wheat content.
Adding to the complexity is the fact that suppliers don’t have control over the movement of their goods in many cases. Freight forwarders with shared loads can find the whole delivery is held up because one supplier in the groupage goods movement has made an error in their accompanying documentation.
“This is the reality of the new situation,” he continues. “We have been playing on a different trading pitch since January 1st and everyone is going to have to get used to it. There will be an element of fine tuning of the arrangements over the next six months, or a year, but we must also face the fact that a further tightening up and rigid application of Customs Union rules will occur, continued complexity under the Northern Ireland protocol and the UK imposing full customs checks from July 1st. This is going to add to the current trade friction. From a long-term perspective, however, there is light at the end of the tunnel.”
McManus sees opportunities for this country to establish itself as a hub for companies seeking access to the Single Market and a gateway to the UK. Companies which may have considered investing in the UK as a first choice may now be attracted to Ireland.
“We have a well-established support infrastructure for FDI here and we remain the largest remaining English-speaking country in the EU. Our common law system, favourable business tax regime and cultural links with the UK add to that attraction.”
There is every likelihood that a much more complete trade agreement will be trashed out over time between the EU and the UK and Irish companies should position themselves to take advantage of that
Likewise, UK suppliers may look to establish a permanent business presence in Ireland to service the local market and provide simplified access to the EU.
In the meantime, Irish and UK businesses will need to look at short-term fixes for the immediate problems caused by Brexit at the same time as they seek longer-term solutions. “We know of at least one instance where an Irish manufacturer is considering establishing a new facility here in Ireland to carry out elements of the process previously undertaken by a supplier in the UK,” McManus remarks.
In other instances, Irish and EU based firms will embark on a process of supplier substitution to reduce their exposure to the potential delays and additional costs associated with transport across the UK land bridge or sourcing product from the UK.
“In other cases, we may see Irish companies establish a presence in the UK to smooth their relationships with trading partners in that market,” he concludes. “That could also open up the possibility of winning increased amounts of business in the UK. Despite the obvious problems created by Brexit, we should look at it as an opportunity. There is every likelihood that a much more complete trade agreement will be trashed out over time between the EU and the UK and Irish companies should position themselves to take advantage of that.”
Some of these cookies are necessary, while others help us analyse our traffic, serve advertising and deliver customised experiences for you.
This website cannot function properly without these cookies.
Analytical cookies help us enhance our website by collecting information on its usage.
We use marketing cookies to increase the relevancy of our advertising campaigns.