Previously, when the UK was in the EU and during the transition period, Moss and other small businesses did not charge VAT on customers in other EU countries. But EU rules on third countries dictate that VAT must now be paid before goods are received from the UK.
Moss could not believe what was happening. Loyal customers were being told to pay around 20% extra on top of the quoted price for his goods before they could get hold of them. Of course, if this continued, they would look elsewhere for cheaper suppliers. What could he and other business managers do?
Moss had three options – and none would be easy. First, he could bite the bullet and pay the VAT himself on behalf of customers in the EU. But this would mean running at a huge loss and was not possible for the long term. Second, he could stop all exports to the EU – but this would reduce the size of his business overnight and mean that years of hard work finding customers abroad had been for nothing. Or third, he could set up and register a company in the EU, ship all his goods out once a week to avoid the delays and individual Brexit-related payments, and distribute his goods from there. The European branch of his company could then pay the VAT and claim it back from the government of whichever EU member state it was based in.
It’s not a 20% difference. It’s a cashflow timing difference.
If VAT is charged along the way then it is reclaimable by the customer – they’re all going to be businesses here. This story has got very garbled somehow. Being in or out of the EU doesn’t determine whether VAT is chargeable overall, it might though change the timing of when it is.