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Brexit – indirect tax and trade implications for the automotive sector

25 July 2018

Brexit and your supply chain

The EU automotive sector’s high level of manufacturing integration across the EU makes Brexit the biggest challenge for the industry since the recession. With many car parts going back and forth between the UK and EU multiple times before they are put into the final vehicle, any tariff changes threaten margins.

The automotive supply chain also relies heavily upon just in time (JIT) production, Tier 1 suppliers are required to deliver components to the manufacturers site ready for the assembly line, with minimum stock held at the manufacturers site. This means that automotive businesses face a number of Brexit trade and indirect tax issues.

Supply chain disruption 

With heavy reliance on JIT production, any delays in the supply chain caused by disruption at port because of the introduction of border controls and customs declarations may disrupt supplies.
Tariffs on parts and vehicles

If the EU and UK fail to agree a post-Brexit trading relationship similar to the one we have now, tariffs will be introduced on parts and vehicles moving between the UK and the EU. Average WTO duty rates are 4.5% for automotive components and 10% for finished vehicles.

Meeting rules of origin

Under a potential EU-UK post-Brexit Free Trade Agreement (FTA), the economic origin of components and vehicles will be critical – it will determine whether or not they benefit from tariff free movement between the EU and the UK. Typically, the key rule of origin for the automotive sector is a ‘minimum originating content’ rule. Manufacturers will need to be able to interrogate their production records to calculate and demonstrate that their products have sufficient qualifying economic content – a potentially complex and time consuming exercise. 

What should companies do now?

  • Consider trader assurance accreditation such as Authorised Economic Operator (AEO) to minimise commercial risk and cost of supply chain disruptions on JIT movements caused by customs delays at UK and EU ports
  • Review the origin of parts and components to determine if they are likely to meet the rules of origin
  • Consider implementing duty reliefs such as customs warehousing and processing reliefs to offset potential post-Brexit duty cost increases on UK-EU goods movements.