The UK is at risk of leaving the EU without any agreement on the exit terms or future trading relations with remaining member states (EU27). In this article, we break down how businesses will be affected, how a “no-deal” Brexit might be prevented, and share tips to reduce impending trade frictions.
In the event of a no-deal Brexit, the current trade agreements with the EU will be ruptured. The EU27 will subsequently trade with the UK as a ‘third country’. Major trading changes will affect European businesses and goods moving across the UK border. More than 145,000 UK businesses will be impacted by new costs and obligations, linked to customs, VAT and leaving the Single Market (SM). So, what are the key changes?
Major trading changes will affect European businesses and goods moving across the UK border. More than 145,000 UK businesses will be impacted by new costs and obligations, linked to customs, VAT and leaving the Single Market (SM). So, what are the key changes?
Leaving the Customs Union — impact on imports and exports
Importers and exporters alike will be required to complete customs declarations. EU imports will face customs, VAT and regulatory compliance inspections.
UK exporters will be liable to pay ‘common external tariffs’ to export goods into the Customs Union (CU) — an irrecoverable cost. The tariffs would initially be at the World Trade Organization (WTO) Most Favoured Nation (MFN) rates — as opposed to the current zero customs duty.
Businesses importing goods into the UK will equally pay MFN standard rates — unless the UK decides to drop tariffs. However, if the tariffs are dropped, it will be uniformly for both EU and non-EU imports.
Leaving the EU VAT regime
The EU VAT regime simplifies VAT treatment (e.g. reporting and recovery). VAT incurred in the EU is currently covered via the HMRC reclaims website for UK businesses. Post-Brexit, UK companies without EU registrations will automatically lose access to the online recovery facility.
In the no-deal scenario, UK businesses will be required to VAT register in EU27 territories on a country-by-country basis. Additionally, some of the EU27 states require non-EU companies to appoint fiscal representatives when registering VAT in their countries.
Leaving the Single Market
For the first time, UK companies that import goods into the UK will be charged a 20% import tax, recoverable through a UK VAT return.
The SM allows the free trade and movement of goods, services, capital and people across its borders.
Once the UK leaves the SM, businesses will no longer be constrained to follow EU regulations and maintain EU standards for goods and services. However, leaving the SM will limit trade within the European market: licencing and quota limits will be imposed and delays should be expected through additional border controls and inspections.
Could a no-deal Brexit be prevented?
A no-deal Brexit can still be prevented. After failing three times to get her proposed Withdrawal Agreements accepted by the UK parliament, Theresa May and the EU have agreed a further delay to Brexit until 31 October 2019.
This date could be earlier if a withdrawal agreement is accepted by MPs. The UK must now take part in European elections on 23 May — if it did not the UK would have to leave the EU on 1 June without a deal.
If the leaders can find a compromise before the end of October, there could be multiple outcomes: a full renegotiation, a referendum, Article 50 is revoked, a general election takes place, and of course, there remains the threat of no-deal.
In the case of a no-deal Brexit, the UK will leave the EU with no negotiated terms — in a second everything will change.
Tips: how can businesses reduce trade friction following a no-deal Brexit?
A no-deal Brexit is increasingly probable, so it’s essential for businesses to start to make preparations to reduce inevitable trade frictions. Here are our tips to help plan ahead.
Understand new customs declarations procedures
Look into grants for Brexit customs training and IT upgrades
Certain UK businesses qualify to get funding for training and IT improvements if they complete customs declarations. There are two grants to help prepare for post-Brexit declarations processes:
Check import duty reliefs to reduce or suspend payments
Certain goods processing procedures qualify for reliefs from customs fees:
Apply for Authorised Economic Operator (AEO) and Customs Freight Simplified Procedure (CFSP) statuses
You can obtain these status’ via the HMRC. To be CFSP certified, you’ll need to provide a monetary bond (reduced if you have AEO status).
Obtain a Customs Comprehensive Guarantee
The HMRC’s Customs Comprehensive Guarantee helps to cover potential duties and VAT liabilities on imports, as well as providing: Temporary Admissions, Inward Processing Relief, Temporary Storage, Customs Freight Simplified Procedure and Customs Warehousing.
Get familiar with VAT registration obligations
Appoint VAT fiscal representatives
19 of 27 states require non-EU companies to appoint fiscal representatives when registering VAT in their countries. Liable for their clients’ missing VAT, fiscal representatives typically request a bank guarantee or deposit (roughly amounting to a quarter of the anticipated annual VAT payments.
Reclaim incurred EU VAT
UK companies currently recover EU VAT online via the Electronic VAT Refund (EVR) 8th Directive. Post-Brexit, this will switch to the considerably longer paper-based ‘13th Directive’ claim system, used by non-EU businesses — companies should ensure to track paper receipts.
If you want to learn more about cross-border e-commerce, click the link below:
Sources: Avalara, HMRC, BBC, Gov.uk, European Commission, World Trade Organization.
Picture: Public Domain.