Businesses are failing to prepare for the impact an exit from the EU will have on their tax affairs, according to BDO’s recent VAT report.
When looking at tax strategies, 65% of UK businesses confirmed that they do not have a formal VAT strategy in place, whilst 38% admit their VAT strategy is only somewhat effective or not effective at all.
While Brexit negotiations remain unclear, four in 10 (40%) businesses admit it is very likely that they will need to take additional VAT advice to assist in managing Brexit, according to BDO’s recent VAT report.
Tom Kivlehan, Partner at accountancy and business advisory firm BDO, said: “Brexit is not an event to be taken lightly, as it’s likely to affect businesses from start-ups right up to conglomerates across global jurisdictions. Brexit will inevitably bring a variety of challenges, however it can be difficult for firms to ascertain how exactly the current parameters will change and how they will be affected.
“What we do know is that VAT and Customs Duty are closely linked to our relationship with the EU and they will be at the front line of changes affecting businesses when Brexit takes place. Our exit is also expected to bring an additional cash flow burden for those buying and selling goods with EU counterparts. Cross border traders should start preparing now to mitigate the impact of this and other forthcoming VAT changes.”
In recent years, the UK authorities have sought to challenge and influence the behaviour of UK taxpayers via a number of measures, including behaviour-based penalty regime (penalties based on the extent to which ‘reasonable care’ has been taken by a business in its tax accounting). Yet, 58% of businesses say that this has not influenced their approach to their VAT strategy.
In addition, despite these penalties, 15% of respondents state that their tax return is prepared by a staff member with no VAT/tax qualification or expertise and is then submitted to HMRC with no review.
Tom Kivlehan continued: “It appears that only those UK businesses which have had significant VAT errors in the past are dedicating appropriate resources towards managing its VAT compliance effectively.
The lack of tax strategy across business of all sizes suggests that Brexit may be a catalyst for businesses to put a strategy in place. As formal Brexit negotiations continue, it would be advisable for businesses to start scenario planning and consider their options. Those that prepare now will be able to adapt more quickly to the new trading environment as it evolves.”
BDO has produced a Brexit planning guide which analyses the tax and legal changes that arise according to six business scenarios.
(Source: BDO LLP)