Thousands of small firms could be forced to charge VAT during Brexit transition, MPs warn

Posted On: 
28th December 2018

Thousands of small businesses could be forced to charge VAT during the Brexit transition period, an influential group of MPs has warned.

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Currently, firms with a turnover of less than £85,000 are exempt from charging VAT, but a new EU directive seeking to “harmonise” tax rules would see a new limit of £76,600 set across the bloc.

MPs on the EU scrutiny committee warned that thousands of UK firms would be forced to comply with the new rules as a result of the 20-month transition period proposed in the Prime Minister’s withdrawal agreement.

The report adds: "If the Agreement is ratified and the Directive took effect during the transition, the Treasury would have to transpose it into UK law. This could have significant implications for small businesses.

“It is particularly concerning in this regard that the UK will lose its veto over the proposal on 29 March next year, but it could nevertheless apply here in full."

The report is likely to infuriate pro-Brexit MPs who are concerned the UK will be forced to accept new rules from the EU during the transition phase.

Brexiteer Marcus Fysh, who also sits on the committee, said: “It is an example of how the transition in the Withdrawal Agreement could have dangerous implications for domestic business in the UK, with us still being forced to follow EU rules.

“Should it be extended we could be exposed to all sorts of other anticompetitive regulation coming down the line that we could do nothing about."

Labour MP Chris Leslie, who is campaigning for a second EU referendum, said: “This is another thing that none of us could possibly have know about back in 2016 and whatever way you voted then you weren’t voting for more taxes and bureacracy on small business and the self-employed. The Prime Minister’s plan makes the UK a rule-taker and removes our say around the table."

Mike Cherry, national chairman of the Federation of Small Businesses, said: “VAT is the hardest, most time-consuming tax for small businesses to administer, typically taking more than a working week a year.

“Dragging more small firms into this bureaucratic regime would take hard-working entrepreneurs away from running and growing their business.”