As the clock ticks ever louder towards the date of the UK’s exit from the EU next March, the consequences for taxation liabilities and cash flow for businesses have come to the fore. The British Retail Consortium’s research on upfront import VAT shows why clarity for businesses and consumers is urgently required. It’s an issue that up until now has been slightly overlooked by Brexit preparations and negotiations but we’ve put it on the agenda because without a clear government strategy UK businesses will be issuing an SOS.

At the moment, movements of goods and services between businesses in the EU VAT Area are exempt from import VAT. This faces a major shake-up as goods and services from the EU become liable to import VAT at the point of entry at UK borders. Extra expenditure for the government in collecting and reimbursing firms for upfront tax payments would be required, and prices for consumers will ultimately be higher as the costs of moving goods in and out of the UK rise for businesses.

Prompted by our campaign, the treasury select committee chairwoman, Nicky Morgan, has written to the head of HMRC for urgent clarification that it understands the potential scale of the problem and that it is working now on solutions for businesses.

This issue really matters for the economy. First, according to HMRC and the government’s own impact assessment on the Taxation (Cross-border Trade) Bill published yesterday, 132,000 UK firms will face liability for the first time for upfront VAT for goods crossing the UK border. Depending on the use of the goods, these payments would have to be collected by HMRC and potentially reimbursed to firms at a later stage of the supply or sourcing chain. For business, it creates additional red tape. For the government, it increases the burdens upon HMRC even further.

Second, if the UK leaves the EU VAT area or does not establish a new common VAT area with the EU, firms face having to register for VAT purposes in most EU member states for trade in goods and services. Companies would also face requirements to use fiscal agents to conduct their tax affairs in EU member states where they trade. These burdens would further raise the costs of doing business in Europe.

The retail industry wants to see tariff-free trade; customs arrangements that are as frictionless as possible; and certainty for EU colleagues working in the UK. But issues such as VAT need sufficient attention if businesses and consumers are not to face extra hurdles and costs on importing goods from the single market.

The BRC has put the issue front and centre in the debate and it’s time for action in both Whitehall and Brussels. We welcome the government’s reassurance that firms will be recompensed for the outlay, yet no scheme currently exists to compensate businesses for the cash flow burdens they would face.

The government needs to act quickly and review all the options, including self-assessment for VAT and deferment schemes to meet the challenges that 273,000 UK businesses may face on leaving the EU or at the expiry of any transitional deal. The alternative is that firms will have to meet the costs through costly insurance plans to protect against unexpected cashflow bombshells.

By William Bain, policy adviser, Europe and international, British Retail Consortium.

This piece was originally published at the Times.