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Courtesy of the Telegraph
MPs have warned of the dangers of the Brexit transition period after it emerged that hundreds of
thousands of small businesses could be forced to pay VAT for the first time after Britain leaves the European Union. Brussels is preparing to reduce the threshold at which businesses start paying VAT from a turnover of £85,000 to £76,700 in a bid to "harmonise" tax systems.MPs on the EU scrutiny committee warned Britain will have to accept the move if it comes into force after Brexit in March 2019 because it will lose its right to veto the plans. Under the terms of the Prime Minister's deal, the UK will be required to implement the directive during the transition period, which could last until December 2022.
The "backstop" arrangements in Mrs May's deal could require Northern Ireland to remain aligned with EU VAT law "indefinitely", meaning the new threshold could stay in place long after the transition is over. In a report the MPs said: "If the Agreement is ratified and the Directive took effect during the transition, the Treasury would have to transpose it into UK law. This could have significant implications for small businesses. "It is particularly concerning in this regard that the UK will lose its veto over the proposal on 29 March next year, but it could nevertheless apply here in full."
The committee said the lower threshold would not apply if the UK leaves the EU without a deal as Britain would then be "free to amend or repeal elements of its VAT law". However, British exports destined for the EU would be subject to VAT controls. Marcus Fysh, a Eurosceptic Tory MP and member of the committee, said: "It is an example of how the transition in the Withdrawal Agreement could have dangerous implications for domestic business in the UK, with us still being forced to follow EU rules. "Should it be extended we could be exposed to all sorts of other anti-competitive regulation coming down the line that we could do nothing about."
Chris Leslie, a Labour MP who is campaigning for a second referendum, said: "This is another thing that none of us could possibly have known about back in 2016 and whatever way you voted then you weren't voting for more taxes and bureaucracy on small business and the self-employed. The Prime Minister's plan makes the UK a rule-taker and removes our say round the table." Mike Cherry, national chairman of the Federation of Small Businesses, said: "VAT is the hardest, most time-consuming tax for small businesses to administer, typically taking more than a working week a year.
"Dragging more small firms into this bureaucratic regime would take hard-working entrepreneurs away from running and growing their businesses."
