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UK SMEs, including many exporters, are completely unprepared for the coming avalanche of new EU regulations and taxes, a new business survey shows.
A survey of 733 SMEs conducted by the British Chamber of Commerce showed that more than 80% of SMEs are not aware of the reporting requirements of the EU green tax that comes into force next month, or the related obligations of the EU value-added tax system that takes effect from January 2025.
The BCC is urging the government to improve communications with UK businesses as they grapple with what the industry is calling “Brexit 2.0” – divergence between EU and UK regulations and taxation resulting in extra red tape at the border.
William Bain, head of trade policy at the BCC, said UK SMEs were facing an “avalanche” of EU regulation and taxation.
He added that it was “seriously worrying” that 80% of UK manufacturers (who are also exporters) told the BCC survey that they were unaware of the EU green tax, known as the Carbon Border Adjustment Mechanism.
From October, EU companies must compile reports on the carbon emissions of some imported goods such as steel, aluminum and fertilizers, and from 2026 companies must buy certificates to cover pollution in their products.
The paperwork and costs associated with the carbon tax will fall on UK companies that supply products to EU businesses covered by the green tax.
“This is just the beginning of a series of changes that will be stepped up over the next three years to prevent the use of cheaper but higher carbon steel and other goods with severely damaging climate emissions from being imported into the EU,” Bain said.
George Riedel, head of trade strategy at Ernst & Young, said reporting obligations under the EU green tax would impose a “significant compliance burden” on UK businesses as many report for the first time the carbon emissions contained in their products.
“There is less than a month left before businesses need to review their EU import footprint and assess the impact of compliance and organization on their trade,” he added.
Meanwhile, a BCC survey found that 87% of UK exporters are unaware that changes to EU VAT rules will require businesses providing services, even electronic ones, to pay tax where their customers live.
Bain said: “If you are a UK chef offering cooking courses to EU clients (whether in person or online in the UK), from January 2025 you will need to pay VAT in the state where the EU client is located .”
The BCC survey, carried out in July and August, also found that 43% of UK manufacturers did not know how the UK developed alternative product quality marks used in the EU.
Without intervention, post-Brexit divergences between the EU and Britain over regulation and taxation will create additional bureaucratic friction for British exporters, trade experts say.
“Unless the UK reintegrates with the EU, businesses will have to adapt to the fact that cross-Channel trade will become increasingly difficult,” said Sam Lowe, partner at consultancy Flint Global.
The Department of Business and Trade said it was developing regulatory measures to ensure British businesses can take advantage of new opportunities and freedoms after Brexit.
It added that the UK’s trade deal with the EU means “we can now regulate in a way that suits our economy and businesses, allowing us to be more innovative and effective without being bound by EU rules”.
A spokesman said: “We regularly engage with UK businesses to support them ahead of any regulatory changes.”
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