Pinsent Masons is a member of the GBCC Brexit Advisory Group which is working hard to support businesses through Brexit.
Despite recent heated Parliamentary debates in relation to the Brexit legislation, businesses still do not have certainty as to how customs duty and VAT will apply to EU imports and exports after Brexit. This a key issue for many businesses which need to be able to import and export goods to and from the EU, with the minimum of cost, administration and delays.
The transitional arrangements agreed with the EU mean that the existing VAT and customs rules should continue until 31 December 2020 – but this won’t cover the situation where there is no deal with the EU.
The Taxation (Cross–border Trade) Bill (the 'Bill') had its remaining stages in the House of Commons on 16 July. Rather than setting out detailed rules for our VAT and customs regime after Brexit, it gives the government power to amend legislation to cover whatever is finally agreed with the EU.
Changes that the government was forced to make to the Bill following the actions of MPs belonging to the Jacob Rees-Mogg Chaired European Research Group (ERG) leave more questions than answers.
The Prime Minister is treading a tightrope between keeping the Brexiteers onside and at the same time coming up with something that is workable for business. The latest proposal would involve a free trade area for goods moving between the UK and the EU, with the UK agreeing to 'a common rulebook' for goods. Under the 'facilitated customs arrangement' there would be no customs checks or tariffs on goods moving between the UK and the EU. For imports from outside the EU, the UK would collect tariffs at the EU rate for goods destined for the EU and at whatever rate the UK chooses to impose for goods remaining in the UK.
The government was forced to accept an ERG amendment to the Bill that would make the facilitated customs arrangement more difficult to implement as the Bill now only allows the UK to collect tariffs on behalf of the EU if the EU reciprocates. This means the government may need to get a separate piece of legislation through Parliament if the EU accepts the current plan.
The ERG amendments also create difficulties for VAT. For imports of goods from the EU, the crucial issue is whether post Brexit, VAT will need to be paid at the border.
Currently when goods are brought into the UK from EU member states, there is no need to pay VAT at the border. The system relies on EU sharing of information and the VAT is offset against output VAT in the importer's next VAT return, meaning no cash outflow to HMRC if the importer is using the goods to make taxable supplies. The Bill, as originally presented, allowed the government to make regulations, if we were in a customs union, to treat goods coming from the EU in the same way as currently.
However, the government was forced to accept an ERG amendment removing this provision from the Bill. This means that even if we agreed some form of customs union, without further legislation, imports of goods from the EU would be treated in the same way as imports from other countries meaning that import VAT would have to be paid at the border. The VAT could be reclaimed if the goods were used to make taxable supplies but there is a cashflow disadvantage as the VAT will only be recovered or offset in the importer's next VAT return.
Of course, whatever the UK finally decides, the EU has to agree it and they may have concerns over any regime which involves the UK effectively policing the EU's border with the rest of the world. For example, the EU has already accused the UK of not clamping down on fraud in relation to Chinese fashion imports.
This all still leaves businesses without the certainty they need as to what to do to ensure their supply chains still operate post Brexit. Industry bodies such as the CBI and IoD are urging businesses to plan for a no-deal Brexit. Given the ongoing lack of certainty, this is sound advice.
If you are looking for support and advice on Brexit, make sure you check out the GBCC Brexit Toolkit which sets out suggestions for how businesses can get “Brexit ready”, facts and stats on Brexit and the region’s relationship with the EU. The Toolkit also contains our Brexit manifesto which includes what businesses need to see from stakeholders on Brexit negotiations and beyond. You can access the GBCC Brexit Toolkit here. The GBCC International Business Hub also delivers an extensive programme of events ranging from general guidance to exporting, to doing businesses in specific countries.