Brexit Is Already Hurting UK Companies. |

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Brexit Is Already Hurting UK Companies.

Talks of Brexit seem to have somewhat cooled down since the 2016 vote. If you somehow haven’t heard of it, Brexit refers to the the British Exit from the European Union. The United Kingdom’s decision to part ways with the EU was finalized after a majority Leave vote won during the June 23 referendum in 2016.

Almost a year later, on March 29, 2017, Prime Minister Theresa May submitted an official two-year leave notice to the EU. As of March 29, 2019, the UK will break ties with the EU and stand on its own two feet.

Being a member of the EU inherently benefits members from an import/export perspective. It allows access to the single market which provides fluidity in the movement of commodities. The single market allows goods, services, people, and capital to move freely from one member country to the other, regardless of borders. So, at the moment, the UK can import any goods from within the EU and not have to pay tariffs (import/export taxes) on them. The creation of a shared market makes the EU function as if all its member states were one country. But the UK is leaving the EU, and could consequently be revoked of their access to the single market.

Recent discussions on the fine details of Brexit have touched upon taxation, with the question being: will the UK have to start paying import tax? While no definitive decisions have been made, legislation requiring all UK businesses to pay VAT upfront for imported goods from the EU has been proposed. It is possible that this could become a reality for the UK once Brexit is enacted.

What is VAT?
Value-added tax (VAT) is the sales tax system used in Europe. It is the equivalent of GST (goods and services tax) and HST (harmonized sales tax) in Canada. The possibility of paying tariffs upfront on imported goods could cause a couple notable issues for UK businesses. They would be forced to part with funds that could only be recovered later, causing sudden cash outflow. Additionally, processing times at borders and ports would increase, lengthening the customs process and potentially stalling the rate at which businesses function.

Brexit talks have yet to conclude many details about the separation, and it will be interesting to see how the relationship between the UK and the EU adapts to new borders.