Brexit – six months on and what have we learned?
is an Indirect Taxes Partner based in our Midlands office advising clients on VAT and Customs Duty matters. Hot topics with clients currently include post-Brexit indirect tax reviews.
Six months on from Brexit – or the introduction of the EU/UK Trade and Co-Operation Agreement – feels like an opportune time to take stock. Have the positives outweighed the negatives? Has the way in which we do things dramatically changed?
We are still effectively in a transitional period and, as expected, this comes with plenty of teething problems. However, a lot of the things that experts predicted five years ago – the Northern Ireland protocol aside – have happened, making the last six months fairly foreseeable.
As expected, the immediate impact on the import/export market was profound. Export figures issued by the Office for National Statistics (ONS) recorded that UK goods exports to the EU fell by 40.7 per cent in January, while imports dropped 28.8 per cent. They were the largest declines since comparable records began in 1997.
Additional red tape and the imposition of customs duties and VAT have caused headaches for many trading with the EU. It is only once the dust has settled, and the effective transitional arrangements have been removed, that we are likely to truly understand what what life is like away from the single market – something that may take another 12 months to realise.
So, what has the last six months taught us?
While we may be lacking in good news stories surrounding Brexit, the new trade deal with Australia is likely to generate a positive response in the coming months, as the agreement beds in.
The fact that we have forged our own trade deal with Australia, rather than replacing one inherited from the EU, is a positive takeaway. The hope is that it will pave the way for other new agreements in the not-too-distant-future.
The EU/UK Trade and Co-Operation Agreement was drafted at the 11th hour. This means that cracks have appeared. While the new trade deal was designed to avoid taxes on imports and limits on imports of goods, this can only be achieved provided exports satisfy the conditions set out in the agreement.
That was the case in respect of post-Brexit Rules of Origin. The Rules of Origin are there to ensure a company in the UK cannot buy cheap products from one country, change the labels on them whist in the UK and then sell them into the EU tariff-free.
Many businesses assumed that they would benefit from no tariffs and no trade barriers under the agreement if goods were being imported from the UK to the EU and vice versa. However, as we have seen from the widely reported ‘Percy Pig’ issue, that is not always the case.
In the case of Percy Pig, the sweets were manufactured and packaged in the EU, shipped to the UK where they were stored in a warehouse, before being exported to stores in the Republic of Ireland, which is part of the EU. Because the product was not materially changed in the UK before it was exported back to the EU, this triggered an EU tariff having to be paid – even though the goods were made in the EU in the first place.
As M&S and others have found out: the devil is in the detail. This particular detail has come as a shock to many businesses and has led some to change the shape of their supply chains.
It is important to remember when exporting/importing goods, that the onus is on the exporter/importer to ensure that customs declarations are correct and are not left to a freight forwarder to remedy.
The role of the freight forwarder is primarily to transport goods to where they need to be – they usually have no duty, or liability, regarding tax obligations for their clients or their clients’ suppliers/customers.
It is essential for companies to keep a close eye on all export/import documentation prepared on their behalf to make sure there are no inaccuracies that may lead to backdated taxes and penalties for them or their suppliers/customers. In some instances, this might happen months, if not years from now, and could prove very difficult to manage.
Too soon to be sure but it's not all doom and gloom.
With proposals coming forward from the Competition and Markets Authority (CMA), new trade deals still yet to be agreed, and potential areas of change, such as public procurement, yet to be explored, it will take more time before we can properly sit back and assess the overall position in a post-Brexit world.
If you are currently struggling to find the right arrangements for trading with the EU, please get in touch.