A £1 billion VAT bombshell will hit building supplies to the UK if builders’ merchants are forced to pay 20% VAT upfront on European timber and other materials.
Parliament voted this week to ban the UK from raising taxes bound for the EU unless the EU also collects tax for the UK. If the UK exits the EU without a mutually beneficial customs arrangements, UK businesses face having to pay 20% more for imports from the EU and will have to do this upfront before goods can leave EU ports.
Building supplies will be particularly impacted, with a knock on effect on costs of construction and, potentially, the UK housing market. The Builders Merchants Federation, which is the trade body for builders merchants and their suppliers, has warned of serious and immediate implications for cash flow, costs and prices, given that the UK is heavily reliant on imports for materials such as timber, bricks and paint.
Of the timber used in UK building, 60% comes from the EU - mainly Sweden, Finland and Latvia, and the added costs are £1 billion. For bricks, imported mainly from Belgium and Holland, the post-Brexit changes would add costs of £160 million, while for paint, which comes from across the EU, added costs are estimated to be around £80 million.
John Newcomb, Chief Executive of the BMF, said: “Merchants already face significant cost increases due to rising world prices and currency fluctuations involving sterling.
“Paying 20% more due to VAT rules will hit builders’ merchants hard”.