January 2022 marked the end of the UK’s soft landing out of the EU. But for most sellers, the landing has been anything but soft. Brexit red tape has meant that cross-border commerce, which was previously just logistical and commercial considerations, is now a complex web of customs formalities and new obligations – and sellers are confused in the face of conflicting guidance and a lack of support.
Overall, the UK economy has lost £47.6 billion worth of revenue from EU exports due to tax complexities. This means that if the EU was part of the domestic market, exporters would have made slightly more than £300 billion instead of £252 billion. The latest Cebr report for Avalara finds the stresses of navigating complex regulations post-Brexit continues to hold back growth for UK exporters, and is causing significant anxiety for business leaders.
Based on a survey of 250 UK businesses, the report found that:
- £47.6bn is how much revenue cross-border tax complexity cost the U.K. economy last year
- 64% of businesses feel that staying compliant with tax regulations is the most stressful thing about running their business
- 3 in 5 of U.K. exporters have reversed plans to sell in some European countries over fear of fines and compliance issues
- The new EU VAT reforms took effect on 1 July 2021. Firm revenue could have been £5.2 billion higher if EU VAT reforms had been implemented six months earlier, at the start of 2021
- 94% of firms believe that there has been a rise in positive customer feedback since implementing EU VAT reforms
- 80% of respondents have a return policy, but they only recover 35% of the VAT paid on returned goods
Cross-border tax complexity has a real – and worrying – impact on the UK economy
It is clear that cross-border complexity is hurting the economy, and businesses need greater support and clarity from regulators to help them navigate these changes and remove hurdles. Exporters are increasingly becoming overwhelmed with the enormous amount of time it takes to understand new policies and obligations, and the stress of compliance is hitting hard. Businesses fear legal consequences and fines if they make a mistake, have a hard time understanding complex terms, and lose a significant amount of resources – which could have been invested elsewhere.
Beyond the impact to sellers, consumers in the EU are also now starting to pay the price. They are picking up double-taxation costs and facing import VAT charges to release goods that have been stuck at the border – impacting the customer experience of trading with British businesses and harming reputations.
If sellers can get the right solutions and support in place now, there is a real opportunity to open up cross border trading and empower British businesses to become major exporters. But this will require real support and investment from government, regulators, and trade bodies to give British business leaders the confidence they need to invest in exporting in such uncertain times.
Tax challenges are costing growth potential for UK exporters
As the economy works to recover post-pandemic, many UK businesses remain optimistic for future European growth opportunities, with nearly three quarters (72%) of respondents stating they have plans to expand to at least one more EU market.
Yet, in practice, the weight of compliance burdens and the realities of sweeping EU tax reforms on sales from outside the bloc appear to be impacting these plans. Just under a third (32%) of respondents currently exporting to the EU are planning to exit at least one market, and 3 in 5 (62%) of businesses revealed that the fear of being fined for tax compliance has recently caused them to reverse plans to sell goods in a European country.
Cost is a major factor here. Just under 3 in 5 (58%) exporters said that the cost implications of staying tax compliant.
With little set to change in terms of the levels of tax compliance obligations on UK exporters, the research predicts that the investment loss due to cross-border tax complexity is expected to result in a further £16.1 billion of value lost to the UK by 2026.
Stress over tax is causing UK business owners sleepless nights
Change is uncomfortable at the best of times, but the constant flow of new regulations and the increased amount of work to stay compliant is causing significant stress for business leaders.
A third of those surveyed (33%) said they had lost sleep more than once due to anxiety caused by tax and compliance issues, with almost two thirds (64%) agreeing that staying compliant with tax obligations and regulations is the most stressful thing about running their business.
The anxieties weighing on leader’s minds include fearing the legal consequences of non-compliance (49%), worry over the complex terms and conditions they need to navigate (43%), concern that keeping up with compliance means they will lose time needed for other tasks (33%), and the fear of fines (31%).
The time spent on administrative tax tasks in particular is damaging productivity, with the research estimating that this caused a loss of £386 million in gross-value added (GVA) overall. To reduce the administrative burden of compliance, businesses are increasingly investing in technology to free up capacity and automate these processes.
Unlock the EU Export Growth Opportunity
It’s decision time for UK exporters. Balancing the reward of cross-border expansion with the operational and financial impact of working with the EU bloc is a business imperative. And our research points to the current status quo being unsustainable.
Exporters face a clear choice. Should they restrict growth to the domestic market and markedly reduce the impact of cross-border complexity? Or lean into how they effectively and efficiently tackle complexity and unlock EU growth opportunities to fuel their post-pandemic recovery?
Businesses looking to grow beyond the UK can unlock lucrative opportunities by getting the right tools and support in place. Technology plays a critical role in simplifying the process of international expansion, streamlining administrative processes and allowing businesses to spend their time – and resources – on growth.
Visit here to download the full report and find out more about how businesses can overcome their compliance challenges to unlock cross-border growth.