VAT & Customs – What if it’s No Deal?

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TaxWith the UK scheduled to depart the EU on 29 March 2019 and whilst hope is there for a good deal between the EU and the UK, there has been considerable confusion and speculation around the final outcomes, specifically around what form the deal will take or whether there will be a deal at all.

With this in mind, Andrew Fitton and Nigel Smith at Tait Walker discuss what should be key matters of concern for business owners, drawing on customs and VAT developments.

Customs

On 23 August 2018, the government published its first detailed guidance on preparation for a “no deal”. It contains useful customs pointers for all businesses that intend to exploit new non EU markets after Brexit. It also contains useful pointers for businesses who expect some form of customs control to apply in the short to medium term on their trade with the EU after 29 March 2019.

Customs duty is not just about the rate of duty or tariffs. It is the mechanism that enables authorities to identify what is coming into or going out of their jurisdiction, who has sent it and who is receiving it. The process of monitoring, operating and ensuring compliance with customs systems is vital to authorities, whether they are the UK, EU or any other jurisdiction.

Businesses should be aware of new customs obligations and the systems they need to operate, as well as any tariffs they may become liable for.

After 29 March 2019, Businesses will likely need an Economic Operator Registration and Identification Number (EORI) for importing or exporting to the EU.

It may only take a matter of days to obtain an EORI, unless there are problems in the application or systems are overwhelmed. Businesses without an EORI should consider what is needed to obtain one.

Government guidance also highlights the need for businesses to ensure they can identify the customs classifications for goods. Incorrect classifications can incur substantial penalties and severe delays in the delivery of goods and products.

Importers and exporters should be satisfied that they know who is legally responsible for customs clearance and duty payments. Businesses should be satisfied that their International Terms and Conditions of Business (INCOTERMS) are consistent with customs obligations and should review and clarify any ambiguities in the International Terms and Conditions of Service.

Some of the mechanisms designed to make customs smoother, regardless of the presence of the EU, are also highlighted. Businesses that rely heavily on imports or exports may consider Authorised Economic Operator (AEO) status.

Procedures such as Authorised Use, Customs Warehousing and Temporary Admission may be helpful to businesses that use imports for a specific purpose or those that require goods to pass only through the UK. We are increasingly advising on these processes as Brexit day draws near.

VAT

The government has stated that its aim is to keep the VAT system as close as possible to where we are now which will be difficult, if not impossible, if we leave without a deal. It will introduce postponed accounting for import VAT on goods brought into the UK, and although this will assist cash flow, it won’t dispense with the need to make Customs declarations and other duty payments.

If your business is involved in cross-border transactions, you should be considering the impact on your business of a no deal scenario, by asking yourself the following questions:

  • What do my supply chains look like?
  • How dependent am I on EU partners?
  • What do my contracts and International Terms and Conditions of Services look like? Have I increased my risk and costs by not updating them and should I now be considering different terms for new contracts?
  • Are my customs procedures compliant and robust and will I need an EORI?
  • What are my options if there are delays at the borders? Consider warehousing and a case for an EU subsidiary.
  • Can I do anything to speed up the process or give myself a competitive edge? AEO is an option.

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