Government updates advice on doing business with EU in a no-deal Brexit

Whether a “no-deal is better than a bad deal” just became academic.  With the clock running down to Brexit - in 100 working days – neither option is free from risk to continuity of trade and travel.

For this insight, we have worked through the latest in the UK Government’s guidance to a “no-deal” Brexit, published last week.  It focuses on day 1 of Brexit (30 March 2019) and asks businesses to start preparing for some of the key changes that will come into effect – or at least those changes that they can predict…there are many references to “watch this space” remaining.

The 50 page booklet – with its links to multiple supporting detailed documents and guides – is aimed at businesses that trade with EU today, or may trade with the EU in future.

The two cover letters come from HMRC and address: UK business trading with EU; and Northern Ireland businesses trading with the EU.

UK Technical Notices - of which more than 100 have been published and more are expected - cover off details in the event of a no-deal Brexit.  And business needs to take note of the complementary set of technical notices from the EU giving advice for the 27 Nations on the other end of a trade that UK businesses need to be cognoscente of.

All UK Government publications maintain an optimistic note that a deal with a transition period between the UK and EU will be reached.  However, events this week - politically in the UK and, reportedly, of deadlock in Brussels from the negotiating teams – increase the probability of a no-deal Brexit.  Certainly, it mirrors that advice that we have been giving for more than a year now – ”plan for the worst, even if you are hoping for the best.

What to expect on day one of a ‘no deal’ scenario

If the UK exits the EU without a deal, UK businesses trading with the EU will have to apply new customs, excise and VAT procedures to goods and services.  They come into effect at 23:00 GMT on 29 March 2019 when the UK becomes a ‘third country’ as far as the remaining 27 EU nations are concerned.  Broadly, goods and services trade under rules and regulations that presently apply to trading with countries outside of the EU.

Presently, businesses can move goods freely between EU member states.  For customs, this means that businesses trading with the rest of the EU do not have to make any customs import or export declarations, and their trade with the EU is not subject to import duty.

Certain goods are subject to excise duty.  This is a tax charged on the production and importation of alcohol, tobacco and oils.  These goods are currently free to move between the UK and the rest of the EU with the excise duty-suspended.

If the UK leaves the EU – be it on 29 March 2019 without a deal or at the end of a transition period, say 31 December 2020 - there will be immediate changes to the procedures that apply to businesses trading with the EU.  Effectively, free circulation and movements of goods between the UK and EU ends. 

Impact on Customs – a summary:

UK Customs declarations will be needed when goods enter the UK (an import declaration), or when they leave the UK (an export declaration).

For imports into the UK a separate safety and security declaration needs to be made by the carrier of the goods (this is usually the haulier, airline, freight train operator or shipping line, depending on the mode of transport used to import goods).

For exports from the UK, the export declaration includes the safety and security declaration

For movements of excise goods, the Excise Movement and Control System (EMCS) will no longer be used to control duty-suspended movements between the EU and the UK.

Impact on Tariffs – a summary:

Presently, goods moving between EU member states are not subject to customs duties, and there is no routine intervention during the movement of goods.

From Brexit, duty rates will apply to each item imported into the UK under the EU’s Common Customs Tariff (there are thousands of items listed in the schedule to be aware of).

UK exports arriving at the EU border require payment of customs duty at the appropriate rate.

Trade with the EU will be on “non-preferential, World Trade Organisation” (WTO) terms.

The Government will publish “UK Trade Tariff” - detailing the import duty rates and rules that will be applicable to each type of goods – nearer the point of exit.

Impact on VAT – a summary:

A no-deal scenario it will introduce postponed accounting for import VAT on goods brought into the UK.  This means that UK VAT registered businesses importing goods to the UK will be able to account for import VAT on their VAT return, rather than paying import VAT on or soon after the time that the goods arrive at the UK border.  Note that this will apply both to imports from the EU and non-EU countries.

VAT will be payable on goods entering the UK as parcels sent by overseas businesses - unless they are already relieved from VAT under domestic rules, for example zero-rated children’s clothing.

For parcels valued up to and including £135, a technology-based solution will allow VAT to be collected from the overseas business selling the goods into the UK.

There is no mention in this guide on the future of “VAT Reverse Charge” regime.  Reverse Charge moves the responsibility for the recording of a VAT transaction from the seller to the buyer for that good or service.  That way it eliminates or reduces the obligation for sellers to VAT register in the country where the supply is made.

Businesses that are directly addressed in this guide:

  • Traders importing from the EU only

  • Traders exporting to the EU only

  • Traders with the EU and the rest of the world

  • Traders with the rest of the world only

  • Businesses supplying services to the EU

  • Express courier and postal services

  • Tour operators

  • Businesses selling duty-suspended alcohol, tobacco or fuel in the UK

  • Haulage companies

  • Ferry or Channel Tunnel operators moving goods between the UK and the EU

  • Freight forwarders

  • Customs agents

  • Ports and airports

  • Customs warehouses

  • Temporary storage operators

Contact Brexit Partners for practical advice on preparing your business contingency plan – addressing all of the above and the many other impacts of Brexit.

General Advice from UK Government

Assess the impact of any increased demand from third party depositors, or requirements of your own business, and whether you would need to recruit and train additional staff.

Consider whether you need to make any changes to your customs authorisations, and if you do, make early contact with the appropriate unit to ensure there is sufficient time for the changes to be made.

There is a general comment that many more businesses trading with the EU will need to use the services of freight forwarders and customs agents – noting that all business should anticipate both increased administration overheads and costs of doing business.  The agents themselves are requested to assess the impact of an increased demand in handling customs declarations and ramp up recruitment and training now.

“Deal or no-deal” - Political outlook with 140 days until Brexit

The disruption caused by no-deal would be temporary – one economist recently described “temporary” as up to a decade, but that’s economic cycles for you) – whilst a bad Brexit deal could linger for years, destabilising and defiling British politics.

A second referendum has been ruled out by the present Government.  Any deal that includes the proposals on offer for a Northern Ireland “backstop” will bring huge risks too - raising profound questions of democratic accountability — perhaps more profound than those caused by EU membership.  The UK would not have taken back control but ceded it.

When David Cameron brought his EU renegotiation back to the Cabinet in February 2016, much of the debate around the table was, unsurprisingly, about sovereignty.  It was argued that the very fact that the UK was having a referendum about leaving — and the EU couldn’t stop it — was proof that the UK was sovereign.  The case was made that as long as you could get out of something, you were still sovereign.  It would be ironic if a bad deal meant that the UK ended up leaving the EU in a way that tied it to the EU…for years if not for ever.

However, Cabinet resignations, stalled negotiations and the chances of refocused political priorities across Europe all point to a no-deal Brexit – or no Brexit at all.

John ShuttleworthComment