Brexit red tape onslaught intensifies as UK economy loses £47bn as businesses drown in cross-border tax complexities

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Wednesday, May 18, 2022 12:09 PM

Bureaucracy has increased significantly since Brexit, including new and additional tax rules

Cross-border tax complexities cost the UK economy £47.6bn in lost revenue last year, an average revenue loss of 16% on total EU exports, new data shows industry shared with AM City this morning.

The stress of navigating complex post-Brexit regulations continues to hamper the growth of UK exporters and is causing significant anxiety among business leaders, according to tax compliance technology firm Avalara, analyzing recent data from the Center for Economics and Business Research (CEBR).

Complexity

As the economy struggles to recover from the pandemic, many UK businesses remain optimistic about future growth opportunities in Europe, with almost three-quarters (72%) of respondents saying they plan to expand to at least one other EU market.

Yet in practice, the weight of compliance burdens and the realities of sweeping EU tax reforms on sales outside the bloc appear to be impacting those plans.

Just under a third (32%) of respondents currently exporting to the EU plan to leave at least one market, and 3 in 5 (62%) companies revealed that the fear of a tax compliance fine had recently reverse plans to sell goods in a European country.

With little change in terms of the levels of tax compliance obligations for UK exporters, the research predicts that investment loss due to cross-border tax complexity is expected to result in an additional loss of £16.1 billion for the Kingdom. United by 2026. .

“From the toll of Brexit-based regulatory changes to the uncertainty of the pandemic, anxiety levels have soared as tax complexity has become a major bureaucratic headache, causing business leaders many sleepless nights,” Alex Baulf, senior director of Global Indirect Tax told Avalara.

Baulf said AM City that “the compliance burdens on businesses are becoming almost unmanageable, and the fear of not meeting compliance standards hampers growth opportunities for UK exporters. It hurts the economy. »

He added that “companies need greater support and clarity from regulators to help them navigate these changes and remove barriers, and must invest in digitalization to further ease the burden. administrative and compliance”.

Nina Skero, CEO of Cebr, added that: “If the EU were part of the internal market, exporters would have to make just over £300 billion in revenue, instead of the £252 billion they actually earned. .

In addition to these missed sales to the EU, the export activity that takes place comes with a higher administrative burden which has resulted in an additional loss of £386 million in Gross Value Added (GVA) l last year, underlined Skero.

“These company-level losses are impacting the outlook for economic growth, preventing an estimated £8.7bn of investment that could support GDP by an additional £16.1bn in the longer term.”

She explained that “this means that if UK businesses were not hampered by cross-border EU tax complexity, UK GDP in 2026 could be 0.63% higher,” he noted.

Sleepless nights

Change is uncomfortable at the best of times, but the constant stream of new regulations and the increased amount of work to stay in compliance is causing significant stress for business leaders.

A third of respondents (33%) said they had lost sleep more than once due to anxiety caused by tax and compliance issues, and nearly two-thirds agreed that complying with tax obligations and regulations is the most stressful thing about running their business. .

Worries that weigh on the minds of executives include fear of the legal consequences of non-compliance (49%), worry about the complex terms and conditions they need to navigate (43%), fear that the respect for compliance means they will waste time needed for other tasks (33%) and fear of fines (31%).

Time spent on tax administrative tasks in particular hurts productivity, with research estimating that this resulted in a loss of £386m in overall gross value added (GVA).

To reduce the administrative burden of compliance, companies are increasingly investing in technology to free up capacity and automate these processes.

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