The government has come under pressure to reveal the impact on more than 130,000 UK firms of rules due to take effect after Brexit that will force them to pay VAT upfront for the first time on all goods imported from the European Union.
Nicky Morgan, the Tory chair of the influential Treasury select committee, has demanded to know what contingency plans were being made to avoid the extra cost of the rule change hitting UK firms.
Morgan said in a letter to the head of HMRC, Jon Thompson, that he must respond to warnings by the British Retail Consortium that firms face paying VAT upfront when they import goods, causing them huge cashflow problems. The BRC also fears that “the processing time at ports and border entry points attached to the customs process could increase”.
Morgan said: “As the reality of Brexit begins to bite, its implications on tax are yet to be fully explored.
“Under the taxation (cross-border trade) bill, firms would have to pay VAT upfront on goods imported from the EU before they can be released into free circulation in the UK.
“I have written to HMRC to seek clarification on the costs to businesses and consumers arising from this legislation, the options being considered to mitigate these costs, and the likelihood of the UK participating in the EU VAT area as part of its end-state relationship with the EU.”
Morgan pulled back from earlier comments that she would launch an urgent investigation of the matter, saying that she preferred to wait for Thompson’s response to her letter.
Many Labour and Tory MPs and peers believe the only way to avoid the VAT Brexit penalty would be to stay in the customs union or negotiate to remain in the EU-VAT area.
The chancellor, Philip Hammond, admitted last year that firms faced delays and extra costs on imported goods, and in last year’s autumn budget he committed to “look at options to mitigate any cash-flow impacts”.
HMRC has said that a new system allowing firms to delay VAT payments on imports could be designed, but it would need extra funding from the Treasury.