Changes outlined in one of the many Brexit-related bills would force companies to pay the levy on goods at the point they enter the UK, rather than after they are sold.
Business groups said the change would create severe problems for UK companies, including cash flow issues and additional bureaucracy.
Business groups say changes will create major bureaucratic headache and cashflow problems for more than 130,000 firms
At least 130,000 UK firms will be forced to pay upfront import VAT once Britain leaves the single market, under which import tariffs are not imposed on goods bought from other EU countries.
More than 100,000 UK companies will be forced to pay VAT upfront after Brexit, under controversial government plans being debated by Parliament this week.
Currently, firms can register with HMRC for permission to import some goods from the EU free of a VAT. They register the charge but the levy is added to the price of the product and paid by the customer.
One small business owner told The Independent the changes would be “disastrous” for her company.
Sally Stephenson, who owns The Pencil Case and The Toy Box, two independent high street shops in Cowbridge, South Wales, said: “My business isn’t big enough to import directly, so I buy stock from wholesalers who do. At the moment EU products are imported into the UK without any VAT added, so those lower costs are passed all the way down the supply chain to end-users like me.
Under the new system being planned, the Government said, “import VAT is charged on all imports from outside the UK”.
Businesses would then have to pay the tax upfront and claim it back at a later date, meaning they would be spending significant sums of money long before they recoup them in sales.
Industry groups said the change could create major problems for UK importers and retailers.