Must-read letter in the FT today:
We are a 95 per cent export manufacturer of high tech instrumentation, so we have a lot of experience in overseas trade. On May 24 the head of HM Revenue & Customs estimated that post-Brexit, import-export may cost industry £20bn extra at UK borders. With £10m of exports, 75 per cent outside the EU, and £1.5m of imports, 85% non-EU, we are in a good position to give a realistic figure for these costs.
All imports enter under Inward Processing Relief, and no taxes are paid at the border. Goods may remain in the UK for up to nine months free of duty and value added tax. Duty and VAT become payable if the goods are sold within the EU, but not if they are exported outside. When we sell our equipment to a Japanese company, we invoice free of VAT as an export. It collects ex-works and delivers worldwide, sometimes direct to a customer within the EU. It will invoice without VAT as, being based in Japan, it is not VAT registered. It is that company’s customer who must record and pay VAT, on the basis that it is an import even though the goods may have crossed no frontiers.
Our VAT and tax returns are made on a monthly and quarterly basis, with payment by direct debit. Every two to three years, HMRC audits our record-keeping. Maintaining this system requires a skilled person for one or two days a week — at a £50 hourly rate for 500 hours per year, the annual cost is £25,000. We also employ shipping agents at a £70,000 annual cost, of which over 90 per cent is transport charges. Our cost for import-export paperwork is about £32,000.
Our largest tax is the 20 per cent VAT charged on importing goods from the EU, just as from the US or Japan. This will not change after Brexit, although there may be a 3-5 per cent duty if no deal is done. The cost in additional paperwork will therefore be no more than 10 per cent of the present £32,000. We will incur an average 4 per cent duty on our £225,000 of EU imports, but will recover 95 per cent of this on exporting, so duties will cost the company about £500. Assuming we do business with the EU on terms no worse than the rest of the world, the cost will be around £3,700, or 0.04 per cent of our £10m turnover. Compared to currency exposure where rates can change by 1 per cent daily, this is a negligible figure, so Brexit on any terms will not change our business.
Director, Cryogenic Ltd, London W3, UK
Number 10 and half the can should learn from this…