The Government has published the first 25 of its ‘technical notices’ setting out how a no-deal Brexit would affect businesses and the wider public.
More are due to follow next month.
We’ve studied the notices and summarised the findings most relevant to businesses in Cumbria, particularly those around trade, VAT, employment rights, state aid and implications for road hauliers and the nuclear industry.
Rob Johnston, Chief Executive of Cumbria Chamber of Commerce, said: “The Government’s view is that a no-deal Brexit is unlikely and that they are making preparations for one ‘just in case’.
“But given the mixed response to Theresa May’s Chequers plan, both in Parliament and in the EU, it looks to us to be a strong possibility.
“Comments this week from Michel Barnier, and reports that President Macron is keen to avert ‘no deal’ give cause for hope but there is a lot that can go wrong to derail a potential deal. Businesses need to make contingency plans for a no-deal outcome.
“This is a particularly true for businesses that trade with Europe.
“No deal means no two-year transition period and there isn’t much time to prepare given that the UK is due to leave the EU on March 29.
“The technical notices warn businesses to be ready for customs declarations, tariffs, safety inspections and new licenses from day one. We seriously doubt whether UK customs are geared up for this.
“Businesses are also being warned that it will cost more and take longer to process sterling/euro transactions.
“VAT is one area where there is good news.
“We were worried businesses would have to pay VAT immediately when goods were imported from the EU, creating cash-flow problems. Government has promised to bring in a system called ‘postponed accounting’ for imports to avoid this.”
He added: “There’s still a lot we don’t know.
“For example, what will happen to trade that flows under existing EU free trade agreements with non-EU countries? The Government want to keep these in place but we don’t yet know if that will happen.
“If there had been a deal, the EU was going to ask the countries it has trade agreements with to treat the UK as an EU member during the two-year transition, giving us time to make our own deals.
“There’s no information yet on the Irish border and how trade between Northern Ireland and the Republic will flow.
“As a footnote, we were astounded to read that there are currently 7,000 civil servants working on Brexit, with potentially up to 9,000 more.”
Here’s our summary of what the technical notices say.
- TRADING WITH THE EU
Businesses can currently move goods freely between EU member states.
For customs, this means that businesses trading with the rest of EU do not have to make any customs import or export declarations, and their trade with the EU is not subject to import duty.
Excise duty is charged on the importation and manufacture of alcohol, tobacco and oils but these goods are currently free to move between the UK and the rest of the EU with excise duty suspended.
In a no-deal scenario, there would be immediate changes to the procedures that apply to businesses trading with the EU. It would mean that the free circulation of goods between the UK and EU would cease.
For businesses trading with the EU, the impacts would include:
To access the technical notices in full click here
- Businesses having to apply the same customs and excise rules to goods moving between the UK and the EU as currently apply where goods move between the UK and a country outside the EU. This means customs declarations would be needed when goods enter the UK or when they leave the UK. Separate safety and security declarations would also need to be made by the carrier of the goods.
- The EU applying customs and excise rules to goods it receives from the UK, in the same way it does for goods it receives from outside of the EU. The EU would require customs declarations on goods coming from, or going to, the UK, as well as requiring safety and security declarations.
- For movements of excise goods, the Excise Movement Control System (EMCS) would no longer be used to control suspended movements between the EU and the UK. However, EMCS would continue to control the movement of duty-suspended excise goods within the UK.
What this means for importers
Before importing goods from the EU, a business will need to:
- Register for an UK Economic Operator Registration and Identification (EORI) number.
- Ensure their contracts and International Terms and Conditions of Service (INCOTERMS) reflect that they are now an importer.
- Consider how they will submit import declarations, including whether to engage a customs broker, freight forwarder or logistics provider. Engaging a customs broker or acquiring the appropriate software and authorisations from HMRC will come at a cost.
- Decide the correct classification and value of their goods and enter this on the customs declaration. HMRC publishes tariff information and guidance alongside the list of commodity codes needed to classify goods together with all the tariff rates.
When importing goods from the EU, a business will need to:
- Have a valid EORI number.
- Make sure that their carrier has submitted an Entry Summary Declaration at the appropriate time.
- Submit an import declaration to HMRC using their software, or get their customs broker, freight forwarder or logistics provider to do this.
- Pay VAT and import duties, including excise duty, on excise goods unless the goods are entered into duty suspension.
- Once excise goods leave a customs suspensive arrangement, they may be immediately entered into an excise duty suspension regime. A business will need to declare the goods on EMCS for onward movement via a Registered Consignor
Businesses may also need to apply for an import licence or provide supporting documentation to import specific types of goods into the UK, or to meet the conditions of the relevant customs import procedure.
What this means for exporters
Before exporting goods to the EU, a business will need to:
- Register for an UK EORI number.
- Ensure their contracts and International Terms and Conditions of Service reflect that they are now an exporter.
- Consider how they will submit export declarations, including whether to engage a customs broker, freight forwarder or logistics provider.
When exporting goods to the EU, a business will need to:
- Have a valid EORI number.
- Submit an export declaration to HMRC using their software or online, or get their customs broker, freight forwarder or logistics provider to do this.
- Businesses may also need to apply for an export licence or provide supporting documentation to export specific types of goods from the UK, or to meet the conditions of the relevant customs export procedure.
- When exporting duty suspended excise goods to the EU, a business will need to continue to use EMCS to record the duty suspended movement from a UK warehouse or premises to the port of export.
Hauliers moving goods between the UK and the EU
Hauliers will need to make a Safety and Security Declaration for goods moving between the UK and EU.
There are two types of Safety and Security Declarations: an Exit Summary Declaration (EXS) and an Entry Summary Declaration (ENS).
A carrier is generally required to submit an EXS to the customs authority of the country from which the consignment is being exported. For consignments exported from the UK the EXS generally forms part of the Export Declaration.
A carrier is required to submit an ENS to the customs authority of the country that the consignment is entering.
Steps that businesses may want to consider in a ‘no deal’ scenario
Businesses should consider whether it is appropriate to acquire software and/or engage a customs broker, freight forwarder or logistics provider to support them with these new requirements.
Businesses may want to consider whether using customs procedures would be beneficial. These allow businesses to delay or relieve the payment of customs duty for goods they import into the EU until goods are ready to be released into free circulation.
A customs broker, freight forwarder or logistics provider can advise in the event of a ‘no deal’ scenario whether one of these procedures would be suitable for your business. Customs procedures include the following:
- Customs warehousing: this allows businesses to store goods with duty or import VAT payments suspended. Once goods leave the warehouse, duty must be paid unless the business is re-exporting, or moving goods to another customs procedure.
- Inward processing: this allows businesses to import goods from non-EU countries for work or modification in the EU. Once this has been completed, any customs duty and VAT due must be paid, unless goods are re-exported or moved to another customs procedure, or released to free circulation.
- Temporary admission: this allows businesses to temporarily import and or/export goods such as samples, professional equipment or items for auction, exhibition or demonstration into the UK or EU. As long as the goods are not modified or altered while they are within the EU, the business will not have to pay duty or import VAT.
- Authorised use: this allows a reduced or zero rate of customs duty on some goods when used for specific purposes and within a set time period.
For excise duty purposes, goods are not regarded as imported if they are immediately placed under one of these customs procedures. Businesses need to pay excise duty when these goods are released for free circulation, unless they are immediately placed in excise duty suspension.
As part of considering the potential impacts, businesses should take account of the volume of their trade with the EU and any potential supply chain impacts.
They should begin to look at the guidance for importing and exporting outside of the EU on GOV.UK to familiarise themselves with the key processes.
The UK has applied to re-join to the Common Transit Convention (CTC) when it leaves the EU. The CTC facilitates cross border movements of goods between contracting parties to the Convention, by enabling any charges due on those goods to be paid only in their country of destination. The negotiations on the UK’s membership of the CTC are ongoing.
- CLASSIFYING YOUR GOODS IN THE UK TRADE TARIFF
The UK currently applies the EU’s Common Customs Tariff (CCT) at the external EU border.
For goods entering the EU from the rest of the world (“third country goods”), an import declaration is required, customs formalities and checks are carried out – for example for compliance with EU regulations – and any customs duties must be paid.
Imports from a country with which the EU has a free trade agreement may qualify for preferential rates of duty and rules of origin.
Imports from a country with which the EU does not have a free trade agreement will be subject to the EU’s Most Favoured Nation (MFN) rates of duty and non-preferential rules of origin.
If there is no deal, the UK will leave the EU’s single market and Customs Union.
Goods traded between the UK and the EU will be subject to the same requirements as third country goods, including the payment of duty.
Under World Trade Organisation (WTO) rules, the principle of most-favoured-nation (MFN) treatment means that, unless a preferential agreement is in place, the same rate of duty, on the same goods, must be charged to all WTO members equally.
For UK exports to the EU, the EU will require payment of customs duty at the rate under the EU’s CCT. For goods imported to the UK from the EU, the UK will require payment of customs duty at the rate set by the UK Government.
The UK intends to seek to transition all EU Free Trade Agreements in order to ensure continuity for both goods imported to the UK, and for UK exports.
The UK Trade Tariff, detailing the import duty rates and rules that will be applicable to goods, will be made available on GOV.UK in the same way as now. Importers of goods into the UK will no longer use EU Tariff information published by the EU.
The UK does not intend to immediately change the classification of goods in a “no deal” scenario. The UK does not plan any immediate deviation from the current commodity code list published in the UK Trade Tariff, which is currently applied by the EU, except where necessary to maintain alignment with international standards or for trade remedies purposes.
What you would need to do
Anyone importing goods into the UK from the EU, or exporting goods to the EU from the UK, will have to comply with customs procedures, where these were not previously necessary. This includes the potential payment of duty on UK-EU trade.
Establishing a UK Trade Tariff
The Taxation (Cross-Border Trade) Bill provides the powers for HM Treasury to establish a new UK trade tariff.
The importer (or their agent) must use the guidance in the tariff to help decide the correct classification of their goods.
This will require knowledge of the item being classified, as well as its constituent parts: what it is made of, and the purpose for which it will be used. It will also be necessary to know where it originates from.
The process of classification will result in a numeric commodity code. The commodity codes will be listed in the Tariff with the rate of import duty applicable to the goods falling within those codes.
The Tariff will contain rules for determining the amount of import duty applicable to those goods based on their description (the commodity code) and country of origin.
The Tariff will also set out import procedures such as how the value of a good is calculated, and which forms, codes, and procedures are to be used.
The UK Trade Tariff will replace the EU CCT for imports to the UK. HMRC already publishes tariff data online for use by UK traders with third countries. Those currently importing goods from third countries into the UK will be familiar with this system.
UK Commodity Codes
Commodity codes in the EU are 10 digits long for imports, and eight digits long for exports.
Commodity codes are standardised under the World Customs Organisation’s Harmonised System for the first six digits of the code. The UK is, and will remain, a participating country in this system.
The UK does not intend to immediately change any commodity codes, but the rules will be set out in new UK regulations rather than EU ones.
Under current VAT rules:
- VAT is charged on most goods and services sold within the UK and the EU.
- VAT is payable by businesses when they bring goods into the UK. There are different rules depending on whether the goods come from an EU or non-EU country.
- Goods exported by UK businesses to non-EU countries and EU businesses are zero-rated, meaning that UK VAT is not charged at the point of sale.
- Goods exported by UK businesses to EU consumers have either UK or EU VAT charged, subject to distance selling thresholds.
- For services the ‘place of supply’ rules determine the country in which you need to charge and account for VAT.
If the UK leaves the EU without a deal, the government’s aim will be to keep VAT procedures as close as possible to what they are now.
But there will be some specific changes to the VAT rules and procedures that apply to transactions between the UK and EU member states.
Accounting for import VAT on goods imported into the UK
The government will introduce postponed accounting for import VAT on goods brought into the UK. This means that UK VAT registered businesses importing goods will be able to account for import VAT on their VAT return, rather than paying import VAT on or soon after the time that the goods arrive at the UK border. This will apply both to imports from the EU and non-EU countries. Customs declarations and the payment of other duties will still be required.
VAT on good entering the UK as parcels sent by overseas businesses
VAT will be payable on goods entering the UK as parcels sent by overseas businesses.
The government set out in the Customs Bill White Paper that Low Value Consignment Relief (LVCR) will not be extended to goods entering the UK from the EU. This means that all goods entering the UK as parcels sent by overseas businesses will be liable for VAT (unless they are already relieved from VAT under domestic rules, for example zero-rated children’s clothing).
For parcels valued up to and including £135, overseas businesses will charge VAT at the point of purchase and will be expected to register with HMRC and account for VAT due.
On goods worth more than £135 sent as parcels, VAT will continue to be collected from UK recipients in line with current procedures for parcels from non-EU countries. VAT will also continue to be collected in line with current procedures for all excise goods sent as parcels.
VAT on vehicles imported into the UK
Businesses should continue to notify HMRC about vehicles brought into the UK from abroad as they do now. The Notification of Vehicle Arrival Procedures (NOVA) system will continue to be used for this purpose.
The Driver Vehicle Licencing Agency (DVLA) will not register a vehicle brought into the UK for use on UK roads unless it has a valid NOVA notification or it has been registered using the DVLA secure registration scheme.
Import VAT will be due on vehicles you bring into the UK from EU member states. Certain reliefs will also be available as with current imports of vehicles from non-EU countries. Businesses will need to continue to use NOVA to verify that VAT is correctly paid on imported vehicles.
UK businesses exporting goods to EU consumers
Distance selling arrangements will no longer apply to UK businesses and UK businesses will be able to zero rate sales of goods to EU consumers.
Current EU rules would mean that EU member states will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries, with associated import VAT and customs duties due when the goods arrive into the EU.
UK businesses exporting goods to EU businesses
VAT registered UK businesses will continue to be able to zero-rate sales of goods to EU businesses but will not be required to complete EC sales lists.
Businesses will need to retain evidence to prove that goods have left the UK, to support the zero-rating of the supply.
Most businesses already maintain this evidence as part of current processes and the required evidence will be similar to that currently required for exports to non-EU countries.
EU member states will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries with associated import VAT and customs duties due when the goods arrive into the EU.
Individual EU member states may have different rules for import VAT for non-EU countries and import VAT payments may be due at the border when importing goods. UK businesses should check the relevant import VAT rules in the EU Member State concerned.
UK businesses selling their own goods in an EU Member State to customers in that country
UK businesses will be able to continue to sell goods they have stored in an EU Member State to customers in the EU in line with current Rest of World rules.
They will continue to be required to register for VAT in the EU member states where sales are made in order to account for the VAT there.
Place of supply rules for UK businesses supplying services into the EU
The main VAT ‘place of supply’ rules will remain the same for UK businesses.
These determine the country in which you need to charge and account for VAT. These rules are in line with international standards set out by the Organisation for Economic Co-operation and Development (OECD).
For UK businesses supplying digital services to non-business customers in the EU the ‘place of supply’ will continue to be where the customer resides. VAT on services will be due in the EU Member State within which your customer is a resident.
UK VAT Mini One Stop Shop (MOSS)
MOSS is an online service that allows EU businesses that sell digital services to consumers in other EU member states to report and pay VAT via a single return and payment in their home Member State. Non-EU businesses can also use the system by registering in an EU Member State.
If the UK leaves the EU with no agreement, businesses will no longer be able to use the UK’s Mini One Stop Shop (MOSS) portal to report and pay VAT on sales of digital services to consumers in the EU.
Businesses that want to continue to use the MOSS system will need to register for the VAT MOSS non-Union scheme in an EU Member State. This can only be done after the date the UK leaves the EU. Alternatively, a business can register in each EU Member State where sales are made.
EU VAT refund system
UK business will no longer have access to the EU VAT refund system. They will continue to be able to claim refunds of VAT from EU member states by using the existing processes for non-EU businesses. This process varies across the EU and businesses will need to make themselves aware of the processes in the individual countries where they incur costs and want to claim a refund.
EU VAT Registration Number Validation
The EU VAT Registration Number Validation service allows businesses to check whether a customer or supplier’s VAT number is valid.
UK businesses will be able to continue to use the EU VAT number validation service but UK VAT registration numbers will no longer be part of this service. HMRC is developing a system so that UK VAT numbers can continue to be validated.
- STATE AID
State aid is support in any form (financial or in kind) from any level of government, which gives a business or another entity a benefit in the single market that could not be obtained during the normal course of business.
State aid is governed by a legal framework. These rules are set out in the Treaty of the Functioning of the European Union and associated European legislation. The rules are enforced by the European Commission.
For example, Cumbria LEP and Stobart Group had to show that a £4.9m LEP grant to upgrade the runway and facilities at Carlisle Airport did not breach State Aid rules before the grant was made.
If there is no deal, the government will create a UK-wide subsidy control framework to ensure the continuing control of anti-competitive subsidies.
EU state aid rules will be transposed into UK domestic legislation under the European Union (Withdrawal) Act. The Competition and Markets Authority will take on the role of enforcement and supervision for the whole of the UK.
- WORKPLACE RIGHTS
EU law sets out the following:
- The Working Time Regulations, which include provisions for annual leave, holiday pay and rest breaks.
- Family leave entitlements, including maternity and parental leave.
- Certain requirements to protect the health and safety of workers.
- Legislation to prevent and remedy discrimination and harassment.
- TUPE regulations, protecting workers’ rights when there is a transfer of business or contracts from one organisation to another.
- Protections for agency workers.
- Legislation to cover employment protection of part-time, fixed-term and young workers; information and consultation rights for workers, including for collective redundancies.
- Legislation administering redundancy related payments to employees in case of insolvency.
The EU (Withdrawal) Act 2018 brings across the powers from EU Directives.
This means that workers in the UK will continue to be entitled to the rights they have under UK law.
Employment rights will remain unchanged, including the employment rights of those working in the UK on a temporary basis, except where set out below.
- EU-FUNDED PROGRAMMES
No Deal means that UK organisations will no longer receive funding for projects under EU programmes, such as the European Regional Development Fund and the research and innovation programme Horizon 2020.
Examples include BSUS, the ERDF-funded programme delivered by the Chamber’s Cumbria Business Growth Hub, which assists business start-ups.
However, the Government has guaranteed to fund EU projects agreed before we leave the EU through to the end of 2020.
That includes the current level of agricultural funding under the Common Agricultural Policy.
Beyond that, the Government plans to set up a ‘UK Shared Prosperity Fund’ to fill the gap left by EU structural funds.
- CIVIL NUCLEAR REGULATION
The European Commission currently implements nuclear safeguards in respect of nuclear material for all EU countries, including the UK.
The UK has already passed new legislation so that the Office for Nuclear Regulation (ONR) can oversee domestic safeguards instead of Euratom and signed new international agreements with the International Atomic Energy Agency (IAEA) to replace the existing trilateral agreements between the IAEA, Euratom and the UK.
On exit from the EU, a new domestic nuclear safeguards regime will come into force. This will be run by the ONR, which already has regulatory oversight of nuclear safety and nuclear security. The new regime is not dependent on there being a deal with the EU and Euratom.© Cumbria Chamber of Commerce