With the deadline for the U.K. to leave the EU fast approaching, politicians and media commentators are jostling to predict what will happen.
As it stands, however, there can be only a few potential outcomes. One of these, despite the (non-binding) votes and debates in parliament of late, is the very real possibility of the country exiting the EU with “no deal.”
As such, and despite the uncertainty that exists across companies, from the boardroom to the factory floor, it is crucial that organizations understand and prepare for the changes to taxation processes if the U.K. walks away with a “no deal.”
Knowledge is Key
In an unpredictable climate, brown envelopes from the U.K. tax authority, HM Revenue & Customs (“HMRC”), and the trepidation they bring with them, are the last thing that business owners want to land on their desk. This month, however, the collective crinkle of millions of HMRC-branded pieces of paper probably did the opposite.
After months of waiting and uncertainty, the tax authorities finally published details of exactly how the national value-added tax (“VAT”) accounting regime for international trade is going to work, if the U.K. leaves the EU without a deal. It was welcome news, given that since HMRC had kept many businesses waiting since last August, when they initially said a new system would be put in place for companies that traded with their potentially soon-to-be former EU trading partners.
While there is no sugar-coating the fact that levels of anxiety and uncertainty among the U.K.’s business community remain high—after all, these are no ordinary political times—the HMRC guidance on what businesses need to do will have at least provided some clarity, if a no deal is the eventual outcome.
Should the U.K. leave without a deal, then, in order to import goods into the country from anywhere across the world, businesses will need to have registered with HMRC for an Economic Operator Registration and Identification (“EORI”) number. From this point, import VAT due on global shipments can be included in periodic VAT returns, provided that the supporting documentation includes the relevant EORI number.
The result should be an improved cash flow benefit, since the import VAT will not have to be paid at the port of entry with a subsequent wait of several weeks or even months before being able to claim it back.
The EORI number really is going to be the key to many a “trading door” in the event of a no deal. With it, businesses can quickly apply for new Transitional Simplified Procedures (“TSP”), designed to make—and keep—importing from the EU as simple as possible for British companies that operate a duty deferment account.
Those businesses already signed up for TSP will be able to import goods into the U.K. from the EU without having to make a full customs declaration at the border, saving time, and protecting goods that need to arrive quickly, such as perishable foods and vital medicines.
Another benefit of TSP is that payments of import duties can be postponed until the month after importation—though there are some exceptions for controlled goods where further information will need to be provided to the authorities. There is also an added benefit: TSP can be used for any goods that come into the EU from the rest of the world, before entering the U.K.
It is anticipated that TSP will remain in place for at least a year after Brexit, allowing businesses more time to plan for more stringent processes to come further down the line.
Then there is the news that U.K. businesses will still be able to use the Common Transit Convention (“CTC”) to move goods between the U.K., EU and other countries that are part of the CTC (Iceland, Norway, Liechtenstein, Turkey, North Macedonia and Serbia). This means that duty will only have to be paid when goods reach their final destination.
There is now also clarity around revised requirements for completing customs documentation and VAT returns and for handling “low value” postal imports. Guidance is also provided on the consequences for businesses that either choose not to account for import VAT via their VAT returns, or do not have the necessary arrangements in place in which to do so before a no deal Brexit takes place.
Keep on Checking
While many aspects have become clearer from this latest HMRC communiqué, it is also clear about the fact that regulation elements of a no deal will remain somewhat “fluid.”
Take customs facilitations for example. These are designed to make customs easier and improve cash flow.
Businesses established in the U.K. which are already authorized to use the existing Customs Freight Simplified Procedures (“CFSP”) (which allow authorized traders to gain accelerated removal or release of third country imports by making a simplified declaration containing minimal details at the border) will still have validation, and, additionally, HMRC will be allowing shipping agents and intermediaries to use their own CFSP authorizations in order to ensure clients’ goods clearances happen.
However, TSP is being introduced as an alternative to CFSP and other existing import facilitation measures. HMRC recommend that anyone not already authorized for CFSP instead apply for TSP in order to expedite their imports, as these are much more likely to be approved ahead of Brexit Day.
A Sense of (Somewhat) Knowing
Of course we need to see if a no deal departure takes place, but for now, there is a sense that if this does happen, businesses can take solace in this clarity from HMRC amid continuing ambiguity.
It’s also important that as far as tax implications are concerned—it’s business as usual right up until the 11th hour. Should the U.K. leave the EU without a deal, goods already in transit at 11pm on the night before a departure from the EU can be treated in the same way as they are under the current system.
Uncertain political times call for business vigilance—now more than ever before it’s important that British companies keep their fingers on the pulse of tax requirements, especially if a no deal Brexit happens fast.
- Be prepared. It’s essential that organizations of all sizes think ahead and plan for all possible outcomes when it comes to Brexit.
- Sign up. It is important that businesses know what HMRC schemes are available to them. The authorities have these programs in place to enable businesses to thrive, but they are not always advertised in public spaces! Companies must make sure they are taking advantage of such offerings.
- Partnerships are vital. Businesses are set up to do what they do best—selling their products to make money. By teaming up with the right consultant, companies can take advantage of their intimate understanding of complex tax laws. In ever changing times its very important to have an ally that can break down the jargon and help plan accordingly.
- Always keep abreast of HMRC policy which is continuously evolving—a good starting point is to sign up for regular email updates which are sent out as-they-happen.
Jeff Gambold is a Senior Regulatory Specialist with Sovos.
The author may be contacted at: email@example.com