With a no-deal Brexit appearing increasingly likely, HMRC is now warning that, in that event, 245,000 businesses would face a tsunami of new customs declarations, tariffs and VAT obligations after 29 March.
- Businesses will have to complete 164 million new import declarations per year, up from the current 41 million
- HMRC estimates this will cost £13 billion per annum in administrative costs. For exports, the similar figure could hit £8 billion.
- New tariffs on UK trade with the EU could amount to £22 billion per year as the UK moves to World Trade Organisation (WTO) ‘Most Favoured Nation’ rules.
- An estimated 27,000 small e-commerce companies will be obliged to set-up new EU VAT registrations.
- Thousands of other businesses of all sizes will have to appoint expensive Fiscal Representatives on their existing foreign VAT registrations
- EU states are still not clear on their plans to honour EU VAT reclaims from the UK.
Businesses which haven’t already undertaken serious no-deal Brexit planning need to act as political attempts to find a breakthrough on the Withdrawal Agreement falter. The good news is that HMRC is introducing a range of advantageous measures, and there are many other tactics companies can adopt to mitigate some of the worst of the effects.
Coping with new customs declarations obligations
HMRC has contacted 145,000 VAT registered businesses that trade with the EU to alert them to their new responsibilities to complete import declarations. But it has already conceded that there are a further 100,000 unregistered micro-businesses that will also have to start filing C88, Single Administrative Documents, for all their imports.
To help all small goods traders, HMRC is now offering training grants of over £1,000 per employee to attend professional declarations training programmes. Small companies can also apply for IT investment grants of up to £180,000 to reconfigure their systems post-Brexit. And for the less ambitious, there are customs agents offering outsourced declarations services.
Stay in control of tariffs
On leaving the EU Customs Union, all goods passing between the UK and the EU will become liable to tariffs. Initially, this will be under WTO rules. For imports, the average rate will be 5.7%; for exports, 4.3%.
HMRC can give companies guaranteed advice on their tariff codes, which determine rates, through its Binding Tariff Information decisions. These will set the correct rates for three years based on product information supplied. Businesses can also look at a range of duty suspension regimes: bonded warehouses for trading goods prior to UK clearance; inward processing of goods for short-term imports; and temporary admission procedures covering samples and professional equipment for exhibitions and auctions.
For traders using Roll On Roll Off (‘RoRo’) ports, HMRC has just introduced a duty postponed payment scheme, Transitional Simplified Procedures. This also includes limited clearance documentation and no border checks. Qualification for this certification can be obtained from HMRC.
Minimising customs clearance timings
Large companies have always been able to apply for Authorised Economic Operator status, which is ‘speedy boarding’ for customs clearance. The process is complex, and demands relatively complex controls over stock, recording procedures and a long history of importing. But the less well-known Customs Freight Simplified Procedure is ideal for many of the smaller businesses now being drawn into customs processes for the first time. It limits the amount of customs paperwork, and gives goods shipments a quick passage at ports.
Adjust for new ‘postponed accounting’ on VAT
As the UK leaves the EU VAT regime as part of a no-deal Brexit, UK-EU goods movements will become liable to import VAT. The UK two weeks ago presented a statutory instrument to introduce a deferred VAT ‘postponed accounting’ scheme to cancel the cash flow implications of this change. But this will require businesses to reconfigure their accounting and ERP’s to report import VAT in Box 1 of the standard UK VAT return, and offset it in Box 4.
For exporters, it’s important to see if the EU country they are selling to has a similar scheme otherwise a time-consuming VAT reclaim may become due. Many EU states do not. Ireland has just announced it will introduce such a scheme as a result of Brexit.
Rethink EU VAT registration strategy
A further complication of leaving the EU VAT system is that it imposes the obligation on small e-commerce traders to VAT registering on their first sale to consumers in any other EU state. Currently, they can use the ‘distance selling registration thresholds’, and report under their UK number. This ends in the case of a no-deal Brexit. This will require as many as 27,000 UK small companies to VAT register in various EU states to maintain their right to sell. Alternatively, they could move stocks for short-term storage in any EU country – Belgium or Netherlands are good for their transport links – and retain the right to the distance selling simplification for their sales.
Companies of all sizes with existing EU VAT registrations will face a new legal requirement to appoint a ‘Fiscal Representative’ in 19 of the EU 27-member states. These tax agents hold joint liability for any unpaid VAT so will likely demand and expense bank guarantees or insurance. Instead, UK businesses with more than four foreign VAT registration can consider setting up a cost-effective EU trading shell to pass sales through, and thus avoid the non-EU classification and the need for a fiscal representative.
Last minute VAT reclaims
Lastly, the process for reclaiming EU hotel, travel, restaurant and similar expenses incurred by UK companies becomes trickier in the event of a no-deal Brexit. Instead of the current simplified online claims process with HMRC (‘8th Directive’), recovery claims will be paper-based with separate applications to each EU country.
A major concern being highlighted now is the EU member states’ willingness or even legal obligation to honour claims. France, for instance, is advising UK companies to get all their online claims in by the end of February. Going forward, companies will probably need outside recovery specialists to take them through the painful, replacement paper-based regime.
Guest bog by Richard Asquith, VP Global Indirect Tax, Avalara
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