Businesses in the county are being forced to scrap exports to the EU due to a shift in VAT regulations following Brexit.

Despite warnings to prepare ahead of the end of the transition period, many found themselves distracted by the challenges posed by the pandemic, and only now are finding themselves facing hefty bills and stubborn buyers on the continent.

A key stumbling block is a change in the way VAT is paid on exported products - and for many, the additional costs incurred are forcing them to rein in their international ambitions - and that represents a blow to the growth of many ambitious Kent firms.

Despite the last-gasp free trade agreement - sealed on Christmas Eve, just a little over a week before the transition period ended - many firms are still coming unstuck by the red tape.

Sue Rathmell is VAT director at MHA MacIntyre Hudson, an accountants and business advisor with offices in Canterbury and Maidstone.

She says clients are frequently saying they are running into unexpected issues since we left the EU.

She explained; "What we're finding is that businesses which didn't prepare and didn't get this done before the end of December, are now having to do it. It's holding up their goods and it's taking longer for goods to get through and it's costing them a lot of money.

"I think a lot of people didn't appreciate how tricky things were going to be now we're no longer part of this single market.

"To be fair to businesses, they were trying to survive for the last 12 months so it was not number one for their things to deal with.

"What we're seeing at the moment is just delays. Businesses are trying to continue in the way there were, but they're coming up against problems and then try and sort them.

"But a number of businesses have said to me we're just not going to sell into the EU because it's just so difficult and not worth our while. We don't have the margins in order to be able to cover the additional costs and we're going to focus on our home market. I have that said a lot."

The key stumbling block relates to VAT with many EU firms expecting UK companies to now pick up the tab for the added expense.

The VAT expert explains: "The issues we have is the free trade agreement only relates to customs duty. Basically, if something's been made in the EU or UK there's no customs duty on it. That's great but that only goes so far to sorting out businesses problems.

"The main issue is VAT.

"You don't charge it when exporting goods out of the UK. So if you're sending widgets to another business in, say, the Netherlands, when the goods leave the UK there's no VAT to be charged, it's an export, so it's zero rated, there's a customs declaration to be done which costs around £40-45 and obviously the transportation, which is a bit more expensive now because of delays and stops at the border.

"But when the goods hit the Netherlands, the question then is who is responsible for doing the import declaration and that is determined by the terms agreed between the buyer and the seller. They are known as Incoterms [international commercial terms] - worldwide recognised trade terms which set out who is responsible for the import and delivery.

"The problem starts if you get a UK seller which is responsible for the import and EU businesses have said to their UK suppliers 'you left the EU, you voted for it, it's your problem'.

"Businesses are being told 'we just want you to get the goods to our door without it costing us anymore than it used to do'.

"Which means UK firms are responsible for the import and getting the goods delivered.

"That means import VAT is payable on those goods, as when you import, you have to pay VAT. In order to recover that VAT - which could be as much as 20% of the value of the goods, or 25% in Scandinavia - you have to be registered for VAT in that country.

"It's possible to do, you don't have to set up a local entity to do it, but it costs money as you need someone in the Netherlands, for this example, to do it for you, in Dutch, and then you have VAT returns to fill out and other statistical stuff we don't have to do anymore as we've left the EU, but which still applies in the EU. And all that costs money and takes time to set up."

In addition to getting a local fiscal representative, firms must also pay around £2,100 (2,500 euros) to register for VAT - in addition to annual returns which can equal or surpass that.

It may not cause sleepless nights to the bigger local companies, but many smaller businesses are seeing their profit margins squeezed considerably.

Adds Sue Rathemll: "I've been dealing with a lot of smaller businesses through the Kent & Medway Growth Hub and for them it's a massive chunk of money they're having to pay out when they're still unsure if their customers will want to continue with them. Can they put their prices up to cover the costs? Those are the issues they need to think about.

"You can focus on the home market and increase sales, but it is limited. From the point of view of where the businesses go, they want to grow and make more profits and employ more staff, we need them out there selling into other countries, and we need to make that easier for them as well.

"It is a real shame and I really think it will hold us back in moving forward."

And unless there is further movement on the agreement with the EU, the problem isn't disappearing.

"I feel over the next year we'll get used to it," adds the tax expert. "We'll accept the difficulties and we'll find ways around them. I do think time will help. In terms of what businesses should be doing - it's look at your supply chain, what's coming from where, and what the barriers are."

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