Business leaders have condemned the decision to accept the amendment to ‘New Clause 37, an amendment to the Customs Bill, which commits the government to fully separating the UK from the EU VAT regime, a decision that came about after a demand from hard-line Brexiteer Jacob Rees-Mogg.

Some experts believe it could also result in a hard border in Ireland, which would mean the proposal faces sudden death when considered by the EU.

The amendment means the UK will sever ties with the EU on VAT, something the British Chamber of Commerce (BCC) has described as a “bombshell”, saying it would impact on the cash flow of small businesses who trade with the EU and make exports more expensive and so less competitive, incurring significant costs and putting some small companies out of business altogether.

The Director General of the British Chambers of Commerce, Adam Marshall, said:

“This is the first view businesses have on what the VAT regime could be like after Brexit – and it doesn’t look pretty. A separate UK VAT system will create significant on-going costs for businesses trading across borders, unless special work-arounds are put in place. This change will pile pressure on Her Majesty’s Revenue and Customs, which is already contending with other facets of Brexit, plus the delivery of a new customs system and Making Tax Digital.”

“Firms need to know – now, not in a year’s time – whether and how the government intends to address the potential VAT bombshell facing businesses trading with the EU27 in future. Without a more generous deferment account scheme or postponed accounting, many companies face severe cash flow issues, big new administrative headaches, and a serious loss of competitiveness.”

 Currently companies trading with the EU report every quarter on what they have imported and exported, with a VAT bill calculated after. Without clear facilitations, the risk facing business is the need to pay VAT at the point of each cross-border transaction, creating a significant cash flow and competitiveness problem for many.

Mr. Marshall added, “Businesses are hugely frustrated that politics and ideology – rather than real-world economic considerations – seem to be driving every twist and turn in the Brexit saga. For businesses, VAT isn’t some obscure technicality. A clear, easy-to-use VAT system is crucial for businesses to trade successfully with partners in Europe – and around the world.”

The (BCC) sits at the heart of a powerful network of 53 Accredited Chambers of Commerce across the UK, representing thousands of businesses of all sizes and within all sectors. their Global Business Network connects exporters with nearly 40 markets around the world.