Whatever your views on the forthcoming EU referendum, whether you’re in favour or remaining in the EU or of leaving (Brexit), there are some quite simple repercussions of Brexit for the small UK wargames business – and it’s all to do with tax and tax collection.
There are two types of small UK wargames business: those that are not registered for value added tax (VAT), and those that are registered for VAT. As is apparent on wargames forums, the difference between a VAT-registered business and a non-registered business is not widely understood. The ones that are registered for VAT are in general larger: UK businesses must register for VAT if their annual turnover is more than £83,000. The consequence of that is that a VAT-registered wargames business must charge 20% VAT on toy soldiers for sales within the EU.
Currently, the free trade arrangement within the EU allows both types of small wargames business to trade without further tax or tax collection charges being imposed for selling into another country. For non-VAT businesses there is simply no tax to collect; for VAT-registered businesses, tax is charged in the UK at 20% and is collected on behalf of HMRC by the business.
Brexit would change that by bringing in a tax frontier simply for VAT. This is regardless of any trade agreements and ability to set extra tariffs and duties on products that independence from the EU might bring for Brexit UK. It will happen simply because VAT exists across the EU, and VAT in the EU will not go away just because the UK leaves.
Brexit UK may well remain part of the European Free Trade Area (EFTA), like Norway, but Norway provides the prime example of how VAT would work in the UK for any small wargames business trading with the rest of the EU.
Currently, any VAT-registered wargames business selling to Norway removes the 20% UK VAT from its prices and dispatches an order with a customs declaration about order value on the front of the package. Depending on the value of the order, Norway may charge VAT at 25% plus a tax collection charge of NOK 140 (just under £12). VAT kicks in on orders of NOK 350 (about £29.70) for orders sent by post, and VAT and the tax collection charge add 39% to the cost of an order of that size (source: www.tollsjekk.no).
A £29.70 ex-tax order is equivalent to an order value of £35.64 inc VAT in the UK; however, with Norwegian VAT and tax collection fees it becomes equivalent to £41.34, or £5.70 more expensive compared with the same order to a UK customer.
For a non-VAT-registered UK business, the comparative price is worse. There is no tax to deduct on export to Norway, so the apparent price hike is from £29.70 to £41.34, a difference of £11.64. The same situation happens in the UK, by the way: UK wargamers importing from the USA, for example, should find that Royal Mail charges £8 for collecting import VAT, on an order value threshold of just £15.
Although the same value of goods is bought from the non-VAT-registered UK business as from the VAT-registered business, the apparent tax hike for the order from the non-registered business looks much worse to the Norwegian customer.
Post-Brexit, how the UK trades with EU countries will work exactly the same way as trade with Norway at present. All products from wargames businesses in the UK will appear more expensive not necessarily because of a major difference in the VAT rate – many major EU countries have a VAT rate of 19% to 22%, similar to the UK’s 20% – but because of the tax collection fee, once an order passes the low import tax threshold.
Of course, it is possible to send a parcel to Norway without it attracting tax: it simply has to be below the import tax threshold. What this does in practice is to limit the size of orders from Norway, to the extent that to be safe almost no wargamer in Norway orders more than £22 ex-tax of goods at a time, according to Fighting 15s’ experience at least. For any small wargames business that trades extensively with EU countries, the implication of having most orders to those countries reduced to values that slip under the typical import tax collection threshold of 15 to 22 euros is pretty horrifying.
The collection charge, of course, dilutes in effect as orders get bigger. On an order of NOK 1,000 (about £85 ex-tax of goods from a VAT-registered UK business, or £85 of zero-tax goods from a non-registered business), Norway’s import tax and duty come to only 28%, which doesn’t look much in percentage terms but gives the customer a £33 import tax bill on delivery, which can be off-putting. It still makes the equivalent order from a non-VAT-registered UK wargames business £33 more expensive.
Norway, of course, isn’t a major market for wargames figures. The effect of its VAT tax-frontier within the free-trade zone of the EU reduces order sizes from customers based there. The EU-wide market for wargames businesses, however, is much bigger.
Across the EU, import tax thresholds are low, typically 15 to 22 euros (additional duty based on the type of goods, by the way, typically doesn’t come in until an order reaches 150 euros). With import tax collection fees for VAT ramping up the cost of orders above these low values to EU countries, any UK wargames business – VAT-registered or not – that currently sells to the EU will be affected post Brexit. And non-VAT-registered UK wargames businesses will be worse off than VAT-registered ones because of the greater apparent price hike of import tax and tax collection fees.
Whether post-Brexit UK can set its own tax it won’t matter. The rest of the EU’s existing VAT system and import tax charges will simply come into effect, even for associated countries within the European Free Trade Area, and that’s what will penalise the ability of the small UK wargames business to sell to EU countries if Brexit comes to pass.
Notes: Norway’s charges can be calculated at https://www.tollsjekk.no/en/import-calculator for anyone who wants to check.