Countdown to Brexit: 21 days - Treasury Committee demands Government’s tariff plans for no-deal Brexit – as HMRC triggers a ‘general alert’ to business to prepare for no-deal

The Government had promised to publish the table of tariffs – an import tax that applies to goods coming into the UK - in the event of a no-deal Brexit “in good time for importers to prepare for continuity of trade”.

It appears to have made a decision that - irrespective of tariffs that will be charged on British goods exported to the EU - the UK will not levy equivalent tariffs on goods coming into the UK.

EU countries are duty bound by Treaty to apply the EU ‘third country’ tariffs – including all UK supplied goods – until and unless a bi-lateral trade agreement can be concluded.  We note that it took seven years to finalise the bi-lateral trade agreement between the EU and Japan that came into effect earlier in 2019.

Without negotiating and signing separate agreements with other countries, the UK must – under WTO rules – apply the same tariffs to all other WTO member states – including each of the remaining 27 EU nations.

In this post, we publish the open letter written on behalf of the Commons Treasury Committee to the Chancellor.  We also highlight the latest call to arms from HMRC - updated this week - to all businesses that trade in goods to prepare for a no-deal Brexit - in just three weeks’ time.

Reports that in the event of the UK leaving the EU without a deal, the Government could slash tariffs on imported goods by 80 to 90 per cent, prompted Chair of the Treasury Committee, Rt Hon. Nicky Morgan MP, to write to Chancellor of the Exchequer, Rt Hon. Philip Hammond MP, to ask whether this is indeed the current Treasury position on tariff policy in the event of a no-deal Brexit.

Morgan requested that the Chancellor provides the Committee with this information - before next week’s scheduled meaningful vote on the Withdrawal Agreement.

She also requested that the Chancellor provides an update to the Committee of the Government’s economic analysis produced in December.  This should include regional and sectoral analyses of both removing and maintaining tariffs - and set out how the UK’s ability to negotiate new trade deals would be impacted in the event of tariffs being removed.

Commenting on the correspondence, Morgan said: “MPs should not have to read reports in the press that the Government is planning to slash tariffs on almost all imported goods. This is likely to have a significant impact on different business sectors and regions in the UK economy.

“When MPs decide which voting lobby to walk through next week for the meaningful vote, one of the roles of select committees is to ensure that they are doing so with as much information as possible. At present, MPs are expected to vote blindly next week without this information.

“As the Chancellor has rightly told the Treasury Committee, the maximum amount of analysis should be put in the public domain when a deal is put before Parliament.  The Chancellor should stick to his word and provide this information to the Committee, which we will publish, prior to next week’s vote.”

Meanwhile, HMRC sent a letter to all VAT-registered businesses trading with the rest of the world - or the EU and the rest of the world. We have included a summary at the end of this posting and link to the full text for the tens of thousands of businesses that will be impacted by this change – and need to respond in 21 days’ time – but who will not have received the letter.

It explains actions to take to prepare for changes to customs and VAT procedures if there is no deal:

  • getting a UK Economic Operator Registration and Identification (EORI) number;

  • Transitional Simplified Procedures for customs;

  • customs facilitations;

  • moving goods within the EU using the Common Transit Convention;

  • further controls for exports;

  • changes to accounting for VAT;

  • VAT registration checks;

  • EU VAT refunds.

Reference and Text of the letter from the Treasury Committee

Rt Hon. Philip Hammond MP, Chancellor of the Exchequer, HM Treasury, 1 Horse Guards Road, SW1A2HQ

6 March 2019

Dear Philip,

You will be aware there have been reports 1 that in the event the UK leaves the European Union without a deal, Government trade policy would be to significantly reduce tariffs on imported goods, by 80 to 90 per cent. Such a reduction would represent one of the largest liberalisations of trade policy in British history.

If this were to be the case, it would be likely to have significant impacts on different business sectors and different regions within the economy.

Cabinet discussions are, of course, confidential. However, please could you confirm whether this is the current Treasury position on tariff policy in the event of no deal?  If not, can you outline the current Treasury position on such a policy?

As you told the Treasury Committee in December 2017, "the maximum amount of analysis [should be placed] in the public domain" when a deal was being put before Parliament.

Given the potential impact that such a liberalisation of the UK's future trade policy would have on different regions and sectors in the UK in the event of no deal, and the significance such an impact might have on MPs decisions when deciding how to vote on the Government proposed Withdrawal Agreement, the Treasury should provide the Committee with an update to the Government's economic analysis produced in December to incorporate: 

  • A regional and sectoral analysis of the removal of the vast majority of tariffs, including those on the component parts used to make cars, many finished food products and even some farm produce including cereals, as has been reported.

  • A regional and sectoral analysis of maintaining tariffs on agricultural products and completed motor vehicles, as has been reported.

  • The ability of the UK to negotiate new trade deals in the event that the majority of its own most favoured nation tariffs had already been removed.

It is crucial that Members have this information prior to the meaningful vote.  I’d be grateful for a response by 11 March.

I shall be placing this letter in the public domain.

Rt Hon Nicky Morgan MP

Chair of the Treasury Committee

Reference: HMRC open letter to traders dated 6 March 2019

Urgent action required: Prepare your business for leaving the EU without a deal

Customs declarations on UK-EU trade:

  • If the UK leaves the EU without a deal, customs controls will apply for importing and exporting between the UK and the EU.

  • You need to be prepared for making customs declarations for goods imported or exported by your business, and you will need an Economic Operator Registration Identification (EORI) number. Make importing from the EU easier

HMRC is introducing new Transitional Simplified Procedures (TSP) for businesses established in the UK, to make importing from the EU as easy as possible for the initial period after the UK leaves the EU, should there be no deal.:

  • If you’ve signed up for TSP, you’ll be able to import goods into the UK from the EU without having to make a full customs declaration at the border, and you will be able to postpone paying any import duties.  However, for controlled goods you will have to provide some information before import.

  • You will account for VAT on your VAT return.

  • You can use TSP for goods you’re importing from the EU, and for goods from the rest of the world, that are coming into the UK from an EU port, as long as they have already cleared customs in the EU.

Customs facilitations:

  • Customs facilitations are simplifications designed to make customs easier and, in the case of special procedures or deferring duty, improve your cash flow.

  • If you are a business established in the UK - and have been authorised to use a facilitation by HMRC (for example under Customs Freight Simplified Procedures) - your authorisation will continue to be valid in the UK from the 29 March.  The way you can use it may change as it will be more limited to the UK, but for some facilitations you will no longer need to have a guarantee in place.

  • If you have been authorised to use a facilitation by another EU country, you won’t be able to use this after the UK leaves the EU.  You will need to apply for a new UK authorisation from HMRC to continue to benefit.

Moving goods using Common Transit Convention (CTC):

  • If the UK leaves the EU without a deal, you will still be able to use CTC to move goods between the UK, EU countries and other CTC countries (Iceland, Norway, Liechtenstein, Switzerland, Turkey, North Macedonia and Serbia).  If you use CTC you only have to pay duty when your goods reach their final destination, and some customs formalities can be completed away from the border.

  • Existing Offices of Departure and Destination are likely to be extremely busy if we leave the EU without a deal.  To avoid unnecessary queues, you should consider applying now to become an authorised consignor/consignee.  If successful, you will be able to start or finish transit movements from your own sites.

Further controls for exports:

  • If your business exports goods to the EU from the UK, you will need to make an export declaration to HMRC.  You, or whoever is importing goods to the EU on your behalf, will also need to comply with EU member state customs and controls.

  • To avoid delays at the border, check relevant member state public information for steps you need to take to prepare.

Changes to accounting for VAT:

  • If we leave the EU without a deal, after 29 March, you will be able to declare and recover import VAT in your next VAT return, rather than when your goods arrive at the UK border.  This is called VAT postponed accounting.

  • If you are a business trading between the UK and EU, you will be used to accounting for VAT in this way, when bringing goods into the UK. From 29 March if the UK leaves the EU without a deal, it will also be possible to use VAT postponed accounting when you import from the rest of the world.

  • You will be able to declare and recover import VAT on the same VAT return.  To do this you will need to provide your VAT registration number on your customs declaration.

VAT registration checks:

  • If you currently use the EU’s VAT number validation service (VIES) to check a customer or supplier’s VAT number, UK VAT numbers will no longer be part of this service after 29 March 2019.

  • If you need to check a UK VAT registration after that time, you can use the UK VAT number checker, which will be on GOV.UK from 29 March 2019.

EU VAT refunds:

  • If the UK leaves the EU without a deal, UK businesses will be able to reclaim VAT from EU countries, using existing processes for businesses based outside the EU.