This week, we welcome Tamara Habberley of The VAT People to author a guest tax blog on the very important topic of the VAT and duty implications of a no-deal Brexit – a subject that has rather fallen into the shadows as a result of Coronavirus.

As the pandemic continues to dominate the headlines, we must not forget the real-life ramifications of a no-deal scenario when we finally leave the EU on 31 December 2020. If you purchase from or sell to the EU, Tamara outlines some key considerations to ensure that your supply chain does not grind to a holt.

Does your business trade with the EU and, if so, have you considered the potentially significant impact of the UK finally leaving the EU on 31 December 2020 when the transition period ends? If not, you should take action now to at least consider how the change in rules affect your business.

No-Deal – Duty Costs

If there is a no-deal Brexit, do you understand what duty will be paid on imports from the EU as this information is available?

Similarly, have you considered any strategies for mitigating duty especially where goods imported (from either the EU or beyond) are then re-exported – businesses should plan to avoid double duty.

Changes to Declarations

Irrespective of whether the UK and EU agree a trade deal (which is looking unlikely) there will be a change from 1 January 2021 as to the requirements for:

  • businesses that import from the EU; and
  • businesses that export to the EU.

As a minimum, businesses should familiarise themselves with what they will need to do documentarily and process wise even if there is a deal that only deals with what duty may (or may not be payable), not how imports and exports need to be declared.

The impact for importers from the EU is that the import clearance system will change to:

  • a full declaration at point of entry; or 
  • a simplified declaration with duty due to be paid up to six months after 31 December 2020.

This means that UK businesses importing from the EU need to consider:

  • who submits the full or supplementary declaration – the business or an agent?
  • with goods coming into the UK, for example for processing to send back to the EU, what measures should be put in place to avoid a risk of double duty hit in the UK and EU

In addition, for UK businesses purchasing from the EU, a new postponed accounting VAT system is coming in which will allow import VAT to be accounted for on the VAT return for the period when the goods are imported by including the VAT in box 1 and 4 of the VAT return.

The impact for UK businesses exporting to the EU will be that they need to be able to answer the following:

  • Have the goods been entered as an export via HMRC’s CHIEF (The Customs Handling of Import and Export Freight) system before the goods reach the port? If not, goods sent for export to the EU will be diverted to warehouses or sit on lorries on the M26 creating significant cash flow issues for the UK supplier.
  • Who will clear the goods and pay import VAT and duty when the goods reach the EC? Many EU businesses have taken the view that as they did not vote for the UK to exit the single market, any additional costs of importing UK goods into the EU will be a problem for the UK supplier to resolve if they wish to continue to trade with their EU customer base.
  • What happens if the goods are returned from the EU? Who pays the duty cost and import VAT?

In addition, those businesses currently accounting for sales to EU end consumers via distance sales registrations will need to be aware of significant changes coming in for sales of delivered goods to EU end consumers from 1 July 2020 when the EU wide One Stop Shop (OSS) is introduced impacting on the VAT treatment of goods below E150 and any supplies of services made by non EU suppliers to end consumers in the EU.

Even with a trade deal, the exit will still cause significant issues as the tariff adopted by the UK has different duty rates to the tariff used in the EU. It seems unlikely that the EU will happily accept goods coming in from the UK where a lower rate of duty has been paid when the goods were sent from a non-EU supplier to the UK and then on for sale in the EU.

How can we help?

UK businesses can cushion themselves from the impact significantly by ensuring that they have the correct procedures with HMRC in place so that their goods can exit UK ports after 31 December 2020. Harold Sharp is working in conjunction with The VAT People, a firm of VAT and duty specialists, to explain what issues need to be considered, provide planning and implementation advice to lessen the impact of Brexit on your business. For further information, please speak to Tax Partner Chris Barrington or your usual relationship principal, or call us on 0161 905 1616.

 

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