Cross-border tax complexities cost UK manufacturers £24 billion

Cross-border tax complexities cost UK manufacturers as much as £24 billion (€28.26 billion) in 2021 says a new report from American tax compliance technology company Avalara and its research partner, the UK economic consultancy Centre for Economics and Business Research (Cebr).

The damning report showed that 18% of manufacturers that are currently exporting to the EU envisage exiting from at least one EU market in the future, while 46% said that they had reversed plans to sell goods in the EU due to fears of being fined for tax compliance.

The report contained answers from 250 UK businesses that are based in the UK but which export to the EU.

Further analysis revealed that if the EU was part of the domestic market, exporters should have made approximately £300 billion (€353.19 billion) in revenue last year, but instead they made £252 billion (€296.68 billion). The report also showed that as much as £386 million (€454.68 million) had been lost due to augmenting administrative costs.

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With tax compliance directives not set to change anytime soon, Avalara and Cebr found that UK manufacturers could expect further losses of as much as £4.4 billion (€5.18 billion) by 2026.

In the report, as many as 65% of interviewed business leaders shared that they feared the legal consequences of making tax compliance mistakes, while 42% shared that they were apprehensive about the complexity of the new terms and conditions.

Post-Brexit tax compliance requirements include completing an export declaration, providing key documents to their freight forwarder, and analysing and quantifying payable customs duty. Brexit has changed ten major trade hurdles, which include customs duty cost and compliance, VAT, systems, data and processes, transfer pricing and case law.

Alex Baulf, Avalara’s Senior Director of Global Indirect Tax said that due to the Brexit-based regulation changes, alongside the uncertainty of the pandemic, “anxiety levels have been skyrocketing in the manufacturing sector as tax complexity has become a major red tape headache.”

He added that the compliance burdens were “becoming almost unmanageable” and that they were “hampering growth opportunities for British exporters”. 

Cebr Chief Executive Nina Skero added that as well as the report’s findings of £50 billion (€58.90 billion) loss in earnings and the £386 million administrative losses.

“These firm-level losses are impacting economic growth prospects, preventing an estimated £8.7 billion worth of investment which could support GDP by a further £16.1 billion in the longer term.

“This means that if UK businesses were unhindered by EU cross-border tax complexity UK GDP in 2026 could be 0.63% higher.”

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However, the report wasn’t all bad news: despite the hurdles, manufacturers remain optimistic: 74% of report respondents said they have plans to expand to at least one or more EU markets in the future. 

The report was conducted by Cebr in collaboration with Sapio Research, a British market research agency. Questions posed to the firms covered the effects of firm revenues, tax administration time costs, the effects of non-people costs and marketplace sales value. 

Not only focusing on the micro issues, Cebr and Sapio then analysed the wider impact of the tax compliance policies, analysing the larger economic effects of the reforms as well as how they will affect the businesses being impacted.

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