Businesses could be forced to pay VAT upfront in cash to HM Revenue & Customs (HMRC) under new rules proposed by the Government.
MPs are set to debate the new Taxation (Cross-border Trade) Bill in parliament this week.
According to reports, around 130,000 companies will pay VAT upfront on imports from “outside the UK”, as opposed to it being paid by consumers and then handed over to the tax office.
The measure was introduced so that businesses could still effectively trade with the EU despite not belonging to the customs union or EU VAT area.
But business bodies say the change would heavily impact on companies in terms of cashflow and red tape.
The British Retail Consortium said: “If the bill becomes law without any commitment to inclusion within the EU VAT area, UK businesses will become liable to pay upfront import VAT on goods being imported from the EU-27 for the first time.
“Liability for upfront import VAT will create additional cashflow burdens for companies, as well as additional processing time at ports and border entry points attached to the customs process. Mitigation measures could include companies instituting a revolving credit facility, or utilising import VAT deferment reliefs.
“Both measures require companies having to take out costly bank or insurance-backed guarantees, so would increase the costs of importing goods from the EU.”
Philip Hammond, Chancellor of the Exchequer, said: “This bill represents the first step in setting up an independent UK customs regime and reaffirms our commitment to deliver a smooth transition for businesses as we leave the EU.”