President Donald Trump has once again made headlines with a sweeping announcement of new tariffs on global imports. As part of his “America First” policy reboot, he declared a 10% ‘baseline’ tariff on all imports into the United States, which is what the UK will face. 60 countries will be hit with higher rates, and the EU will face a higher 20% tariff on goods.
For businesses in the UK, this marks a significant escalation in trade tensions and poses real questions about cost, competitiveness, and—perhaps most confusingly—VAT.
What was announced?
On April 3, 2025, President Trump introduced:
– A 10% ‘baseline’ tariff on all imported goods into the US, regardless of origin. It had already been announced that some goods face a higher tariff, such as steel and aluminium.
– A 10% UK tariff
– A 20% tariff specifically on goods from the EU.
– No exemptions for the UK, despite lobbying from British officials
This is expected to hit sectors like automotive, aerospace, spirits, and luxury goods the hardest. With the U.S. being one of the UK’s largest non-EU trading partners, many businesses are scrambling to understand what this means for them.
VAT – are the accusations true?
In the wake of Trump’s announcement, there has been a flurry of commentary—some of it misinformed—around VAT (Value Added Tax), especially regarding whether it creates an “unfair playing field” for U.S. exporters.
Let’s set the record straight:
- VAT is not a cost to most businesses
If a U.S. company exports goods to the UK and registers for VAT (as it should if selling to UK consumers), it can recover the VAT paid on imports, just like any UK business would. The idea that UK VAT “penalises” U.S. businesses is simply incorrect.
- VAT is a consumption tax, just like U.S. sales tax.
The end consumer pays it, not the business. Whether you’re in Manchester or Michigan, if you buy a good or service, you pay a tax on top. It’s just collected in a different way.
- VAT is a global standard
Over 175 countries worldwide use VAT or a similar system. It’s a core component of the UK’s Treasury revenue—raising over £150 billion annually. To suggest the UK should abolish VAT in retaliation to tariffs is not only impractical but economically irresponsible.
- Abolishing VAT? Not likely
VAT has been in place in the UK since 1973. It cannot simply be replaced overnight. Any changes to VAT would require major systemic reform, and there’s no political will—or viable alternative—on the table.
Real-world implications for UK businesses
With Trump’s tariffs now in effect, here’s what you need to know:
1.Exporting to the U.S. just got tougher
The new tariffs make UK goods more expensive in the U.S. market. Businesses may need to absorb costs, renegotiate contracts, or shift focus to alternative markets. It’s also very important to consider your supply chain, as if the origin derives from a higher tariff country, there will be a knock on impact.
2.VAT on imported inputs may rise
If you rely on U.S. parts or materials, your costs may increase—meaning a higher import VAT bill (since VAT is calculated on the full landed cost, including tariffs and freight).
3.Cash flow issues? Use PVA
Postponed VAT Accounting (PVA) can help relieve the burden of paying VAT upfront on imports. If you’re not using it already, it may be time to reconsider.
4.Restructure? Reassess VAT compliance
Changing suppliers or routes due to tariffs might mean new VAT registration obligations in other jurisdictions. You may also consider whether drop shipping products is most cost effective.
Our thoughts:
- Don’t panic about VAT – Focus on facts, not headlines. VAT isn’t your enemy; it’s a neutral tax mechanism.
- Recalculate your margins – Build in the impact of new U.S. tariffs to avoid surprises later.
- Review your export strategy – Consider opportunities by Free Trade Agreement (FTA) partners less affected by U.S. politics and expect FTA’s to be in development over the coming months.
- Talk to your advisers – Especially if you’re rethinking supply chains, pricing, or considering VAT group registration.
While the headlines may feel dramatic, the best response from UK businesses is a calm, informed strategy—especially when it comes to VAT.
At PM+M, we’re here to help you stay compliant, competitive, and confident in the face of global uncertainty.
Contact Andrew Kirkaldy for a VAT and trade impact review tailored to your business.
