Upfront VAT Payments Driving SMEs to Buy From Overseas, Says Brewery Chief

28 Nov

UK SMEs that are being made to pay VAT upfront on capital purchases such as machinery and stock are increasingly buying from abroad in order to avoid being out of pocket, the founder of a major brewery has said.

James Watt, head of brewery and pub company Brewdog, says that small businesses and particularly those just starting out simply cannot afford to front an extra 20% on top of what they are paying for the products needed to get off the ground.

Brewdog bought their bottling machine from Italy, because buying it from the UK would have meant finding an extra £20,000 in order to pay the VAT on it. “Our finances were pushed to the limit and we simply could not afford that amount of money to not be in our bank account for that amount of time,” he explains. HRMC typically takes around three months to refund VAT, putting new businesses in a tricky position.

Watt says that the system “heavily incentivises” UK companies to buy abroad, at an overall loss to the UK economy. Changing the UK VAT system, he says, would make no difference to the Treasury as the VAT is refunded anyway. “It’s not looking for a hand-out, free lunch or financial help whatsoever. It would not reduce the amount of income collected by HMRC at all.”

The trend of buying from abroad is actually harming economic recovery, says Watt; however the solution as far as VAT is concerned is not a simple one. Even it wanted to change the current system, the government would still have to wrangle with EU red tape as each member state must first gain the approval of the central body. It is unlikely that that body would want to rock the boat, when money is changing hands within EU borders anyway, meaning that they receive the income whatever happens.

Brighton based VAT consultants Accordance held a roundtable discussion recently that debated the very issue of individual member states’ interests versus those of the centralised tax authority of the EU, coming to the conclusion that individual states were always keen to maximise revenues in whatever way possible.

It is this that could be the ultimate barrier to any shake up of the current UK VAT system and the upfront payments being imposed upon businesses.

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