Blog: Brexit – Deal or No Deal, and a game of Chequers
What are the latest developments? As it currently stands, the UK is set to leave the European Union (EU) at 11pm on Friday 29 March 2019. Based on the position of the current UK Government, this will mean that the UK will no longer be part of the Single Market or Customs Union. This raises questions as to how this will affect UK businesses and consumers, including any potential impact on the land border between Northern Ireland and Ireland.
Due to the fact that there are many issues yet to be agreed between the UK and the EU, including their future trading relationship, the Government has published a series of technical papers in the event of a ‘No Deal’ Brexit. HMRC has also issued letters to VAT registered businesses outlining the main changes to VAT and customs, were the UK to leave the EU without a deal.
What are the UK Government’s proposals? The UK Government’s White Paper “The Future Relationship between the United Kingdom and the European Union” (the Chequers Deal), contains proposals for a future Economic Partnership. This affirms the Government’s position to leave the Single Market and Customs Union.
However, in respect of trading with the EU, the UK Government has proposed that there should be “frictionless access at the border to each other’s market for goods”. This would involve establishing a free trade area for goods to eliminate the requirement for customs declarations or import tariffs.
Whether the UK reaches a deal with the EU on the outstanding issues remains to be seen, although current media reports indicate that the EU leaders are not looking favourably on the Chequers Deal as it stands. Furthermore, any final agreement will still need to be ratified by UK Parliament.
No Deal? Currently, when goods are traded between the UK and the EU, they are free to move across borders without tariffs being applied, or the need for customs declarations, although statistical reporting, such as Intrastat or EC Sales Lists are often required.
Main Changes If the UK leaves the EU without a deal, then goods moving between the UK and the EU will be treated as third country imports and exports. Customs declarations will be required and in addition, import duties will become due on many goods imported from the EU. Likewise, goods exported from the UK will become subject to import duty and customs requirements when entering the EU. Safety, security and import/export licensing requirements will also be an additional consideration.
One significant outstanding issue is the land border between Northern Ireland and Ireland. By the UK leaving the EU and Customs Union, this may, by default, create a customs border. In a bid to reassure those potentially affected, the UK Government has stated its commitment to ensuring that no ‘hard border’ is introduced following Brexit. More work is still required in this area and will involve further negotiations between the UK, Ireland and the EU.
Other VAT Changes Other changes to the UK VAT system in the event of a No Deal are summarised as follows:
What next? Whether there is a final deal reached on the UK leaving the EU should become clearer in the coming weeks and months. There will likely be continued political wrangling on this issue; there have even been calls for Brexit date to be extended, in order to allow time for a more detailed agreement.
Even although there is still uncertainty surrounding Brexit, the recent technical notices on a ‘No Deal’ Brexit should help businesses and individuals to set some parameters for contingency planning.
This is a good opportunity for businesses to reconsider how Brexit, including a ‘No Deal’ scenario, could impact on their operations. If not already done so, businesses should review their supply chains to assess the extent they will be affected. For instance, could goods become subject to import duty or have licensing requirements? Businesses should also consider the mechanics of importing or exporting, particularly if they have not previously traded with non-EU countries.
There are solutions available to businesses to mitigate the potential impact of Brexit. There are a range of approved customs storage and processing regimes that can aid cashflow. Importers or exporters seeking fast-track customs clearance or a reduction in security or guarantees could seek Authorised Economic Operator (AEO) status, although this involves a lengthy application process.