What Excise duty issues need to be considered?

Certain goods are subject to excise duty, which is a tax charged on the importation and manufacture of alcohol, tobacco and oils.  Currently, it is possible for these goods to move between the UK and the rest of the EU with excise duty suspended.

Excise duty could be impacted by Brexit in a number of areas. The continued uncertainty surrounding the UK-EU negotiations means it is not yet possible to establish exactly what the scale of impact may be. If there is a transition period, there may be little initial change.  If there is ‘no-deal’ there may be swift and wide-reaching change.

We highlight below some of the aspects that need to be considered.  This is not an exhaustive list but work in progress and we thank Alan Powell (CIOT ITX Sub-committee) for his contribution. If you have further aspects to include please contact technical [at] ciot.org.uk

No-deal

The government has published advice for a ‘no-deal’ scenario. There is little detail on excise duty but it does state that the Excise Movement and Control System (EMCS) would no longer be used to control duty suspended movements between the EU and the UK.

However, we are told that EMCS would continue to be used to control the movement of duty-suspended excise goods within the UK, including movements to and from UK ports, airports and the Channel Tunnel. This will mean that, immediately on importation to the UK, businesses moving excise goods from the EU, including those in duty suspension, will have to make a customs declaration and the goods placed either in to a customs or excise suspensive arrangement or the duty must be paid at that point.

EU businesses would (unless otherwise agreed) apply customs and excise rules to goods it receives from the UK, in the same way it does for goods it currently receives from outside of the EU. This means that the EU would require customs declarations on goods coming from, or going to, the UK, as well as requiring safety and security declarations.

  • How will the UK and EU systems would co-exist? 
  • What friction may exist? 
  • What duty may become payable? Excise duty is payable on top of customs duty.

Withdrawal Agreement

If the Withdrawal Agreement is passed through Parliament there will be a transition period where current excise rules remain in place and the UK will be treated as if it is a Member State. 

When the transition period comes to an end, there will either be a future agreement in place (yet to be determined) or the backstop (protocol for Ireland / Northern Ireland) will come into force. 

Goods that are midway through an intra-EU customs movement that begins before the end of the transition period and finishes afterwards will continue to be treated as though they are under EU law.

Article 9 of the WA provides that certain EU VAT and excise rules will continue to apply in Northern Ireland with respect to the movement of cross-border trade in goods. However, Northern Ireland will remain part of the UK’s VAT area, with HMRC continuing to be responsible for the operation and collection of VAT, and Parliament for the setting of VAT rates, across the UK in line with the Northern Ireland Act 1998.  The Joint Committee shall regularly discuss the implementation of Article 9, and where appropriate, adopt the necessary measures for its proper application. 

  • How will the UK’s excise arrangements apply should the backstop come into force?  Will they match Northern Ireland’s (and therefore the EU’s) or will differences emerge?

Legal aspects

HMRC are making Brexit preparations for a no deal or transitional period, much of which has concerned movements of goods at, or after, Brexit.  In terms of law, most UK primary legislation is “old” law that implemented little of the EU Directives directly, so not much will need changing. 

Where EU law has been implemented (or referred to in UK law), HMRC is drafting five sets of statutory instruments (under Henry VIII powers), cleansing the EU references. 

Representations have been made by industry to HMRC that the best principles of EU law must be transposed into UK law, not least that excise duty is a tax on consumption (which is a tenet of EU law – Polihim C-355/14). 

Current UK law is out of kilter with Polihim and imposes potentially unlawful duty points for any “breach of duty suspension”, which can often occur in error.  If a duty point is created in error, there follows an absolute liability to a civil penalty of up to 100% of that duty.  It will be important to scrutinise the draft Brexit excise legislation carefully.

Practical aspects

There have been discussions with HMRC and industry around the removal of guarantees for excise warehouse premises and movements of goods. 

  • Excise approvals - where excise approvals are required to be amended, HMRC have stated that, for the short term, procedures will be undertaken more quickly. 
  • Movement guarantees - wording to movement guarantees will need to be re-written (or varied by schedule) to remove reference to EU movements.  It has been suggested to HMRC that the requirement for movement guarantees is removed. 
  • Premises guarantees - Similarly, HMRC acknowledge that premises guarantees might also not be required. 
  • Warehousekeepers and Owners of Warehoused Goods Regulations (WOWGR) - registered owners and duty reps - representations have been made that the conditions attaching to registration and approval are in breach of proportionality, impose restrictions and limit rights under EU law.