UK manufacturers lost £24billion last year due to cross-border tax complexities

Cross-border tax complexity cost UK manufacturers £24 billion in lost revenue last year, according to new research commissioned by tax compliance technology firm Avalara, Inc. from the Center for Economics and Business Research (Cebr) .

The report finds that the constraints of navigating complex post-Brexit regulations continue to hamper the growth of UK manufacturers and cause significant anxiety among business leaders.

Complexity hurts UK manufacturers’ growth potential

As the economy struggles to recover from the pandemic, many UK manufacturing companies remain optimistic about future growth opportunities in Europe, with almost three-quarters (74%) of respondents saying they plan to expand to at least one or more EU markets.

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. Almost a fifth (18%) of manufacturers currently exporting to the EU plan to leave at least one EU market in the future, and 46% revealed that the fear of a tax compliance fine recently made them reconsider their plans to sell goods in a European country.

With little change in terms of levels of tax compliance obligations for UK exporters, the research predicts that the loss of investment due to the complexity of tax administration is expected to result in an additional loss in value of £4.4 billion. pounds for UK manufacturers by 2026.

Tax compliance causes stress for majority of manufacturers

The constant stream of new regulations and the increased amount of work to stay in compliance is causing significant stress for manufacturing professionals. In fact, for 54% of manufacturers, ensuring they remain compliant with tax obligations and regulations is the most stressful thing about running their business.

Other anxieties that weigh on the minds of leaders include fear of legal consequences (68%), fear of complex terms and conditions (42%), fear of fines (32%) and fear of wasting time necessary for other tasks (32%).

For employees working on tax compliance, the share of time spent on tax administration in the EU f was 18.9%. This time spent on tax administrative tasks hurt productivity, with research estimating that it led to an overall loss of £108 million in gross value added (GVA).

Alex BaulfSenior Director of Global Indirect Tax at Avalara, said: “From the impact of Brexit-based regulatory changes to the uncertainty of the pandemic, anxiety levels have soared in the manufacturing sector as tax complexity has become a major bureaucratic headache. The compliance burdens on UK manufacturers are becoming almost unmanageable, and the fear of not meeting compliance standards is hampering growth opportunities for UK exporters. Manufacturing companies need greater support from regulators to help them navigate these changes, and need to invest in digitalization to further ease the administrative and compliance burden.

Nina SkeroCEO of Cebr, said: “Our analysis shows 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.

“These company-level losses are impacting the outlook for economic growth, preventing investment worth an estimated £8.7bn that could support GDP by an additional £16.1bn in the longer term. This means that if UK businesses were not hampered by cross-border EU tax complexity, UK GDP in 2026 could be 0.63% higher.”

Transition to e-invoicing and real-time compliance to reduce administrative burden

Around the world, tax authorities are seeking to modernize the reporting of indirect taxes to ensure greater transparency regarding payments and the recovery of VAT. Over the past couple of years, governments have introduced e-invoicing and real-time reporting to streamline tax payments, moving away from time-consuming and inefficient manual processes. This move towards automation, supported by digital transformation, will be an important long-term solution for companies looking to free themselves from the administrative burden of compliance.