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Brexit – official position papers and their impact on VAT and customs duty

10 November 2017

During 2017, the Government has issued a number of position papers on the impact of Brexit on customs duty and VAT. Currently, these are no more than statements of intention and subject to negotiation between the UK and EU. However, cross border businesses should take note of these proposals as they are the firmest indication so far of how their VAT and customs position might change after Brexit.



Shortly after triggering Article 50 in March 2017, the Government issued a white paper announcing The European Union (Withdrawal) Bill. This will repeal the European Communities Act 1972 and convert EU legislation, as it stands on the last day of the UK’s EU membership, into UK law.

The white paper also stated the Government’s intention to end the jurisdiction of the Court of Justice of the European Union (CJEU) when the UK leaves the EU, meaning UK courts will no longer be required to consider the CJEU’s jurisprudence. However, the Government plans to give historic CJEU case law equivalent precedent status to that of the UK Supreme Court so it can be used to interpret EU derived law as long as it remains on the UK statute book. The Supreme Court will also have the power to overturn the CJEU precedent, but this would be done on the same (exceptional) basis on which the Supreme Court may dissent from its own case law.

Broadly speaking, this would mean the EU law and case law that underpins the UK’s VAT system will remain in force on the day that the UK leaves the EU, enabling the Government to decide over time which it may wish to change.


Customs and cross border trade

In August 2017, the Government released ‘Future customs arrangements: a future partnership paper’ detailing its aspirations for the UK’s future customs arrangements after its departure from the EU. This was followed up in October by another white paper setting out plans for a Customs bill containing legislation to implement a standalone customs regime for the UK.

Firstly, the Government stated its intention to leave the EU customs union. However it hopes to negotiate a transitional period under which the existing EU trade arrangements can be maintained while a new customs regime is developed. This, the Government suggests, could be along the lines of one of the following models:

  • A streamlined customs arrangement – to apply a customs border between the UK and EU, with negotiated trade facilitations to make trade with the EU and the rest of the world easier, e.g. a waiver from the requirement to submit import and export entries for goods moving between the UK and the EU and allowing goods moving to and from the UK from non EU countries to travel through the EU without paying EU duties.
  • A new customs partnership - to operate a ‘virtual EU’ regime to goods that enter the UK for onward shipment and final consumption within the EU, under which the UK would apply the same tariffs and rules of origin as the EU. The Government hopes this would allow those goods to continue moving freely between the UK and EU without the need for customs clearance at the border.


The no deal option

The October white paper added a contingency plan to set up a WTO compliant customs system for the UK in the event it was unable to agree either of the above models with the EU. Under this, trade with the EU will be subject to customs declarations and customs checks. The UK would apply the same customs duty rates to each country with which it didn’t have a trade deal (or preferential rates for developing countries), with precise duty rates to be set out in secondary legislation before the UK leaves the EU. UK businesses trading only with the EU will have to apply for an EORI number, currently required to trade goods with countries outside the EU, and quote it on customs declarations. The white paper also states that the customs bill will include provision to allow the Government to implement measures to mitigate the impacts on traders, but does not comment on what these might be.

The Government recognises that imports and exports of goods through ‘roll on roll off’ ports will be particularly affected by customs formalities at the border, so proposes that consignments are pre-notified for customs and safety and security purposes, with an inland presentation scheme for exports. It also wants to avoid any return to a hard border between Ireland and Northern Ireland and says that the EU has made a clear commitment to work on a solution for this. However, neither customs paper sets out a specific plan to address that issue.

The proposed Customs Bill is expected to enter Parliament later in the autumn. Meanwhile, the Government has launched a public consultation on its customs proposals – asking in particular for details of individual businesses’ EU trading activities, the time sensitivity of their supply chains and how long it would take to prepare for the changes.


Where does this leave UK businesses?

The proposed assimilation of EU law and case law suggests that the UK VAT system will continue unchanged immediately after Brexit. However, there are a number of important VAT considerations that the Government has not yet addressed, such as:

  • How it might mitigate the impact of import VAT on business’s cash flow
  • The fate of VAT simplifications agreed between member states for cross border supplies of goods and services (e.g. triangulation, reverse charge, distance selling, the Mini One Stop Shop, the Tour Operators Margin Scheme).

On the customs side, a great deal of work remains to be done before a post Brexit regime is confirmed for trade in goods. Both suggestions offered by the UK would require a great deal of co-operation from the EU and received a negative response from EU officials when first published. At this stage, the contingency WTO plan, which would require customs declarations at import and export, looks the most likely outcome.

With less than eighteen months until the UK is due to leave the EU, UK businesses still have very little concrete information about how it will affect them from a VAT and customs perspective, making it difficult to plan for the practical and systems changes Brexit may entail. However, it is perhaps worth noting that HMRC has said it will need to recruit 5,000 new staff in the event of a ‘no-deal’ Brexit – which says a lot about the potential increase in administration it could cause.


How BDO can help

While negotiations continue, BDO has produced a Brexit Planning Guide and a free Brexit planning tool to help you evaluate the most likely impacts on your business and focus on the practical steps you can be taking now.

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