Brexit and customs: taxing times
10 September: It’s now a matter of months before Britain transitions out of the EU. It could prove challenging and costly for businesses that aren’t prepared.
We are less than five months away from the end of the UK’s transition period from the EU, and so much is still uncertain. There is still no trade deal in place, but no deal isn’t necessarily the endpoint. Things are changing so quickly that it’s difficult for organisations to make concrete plans.
There are some certainties, however, according to Andrew Thurston, customs consultant at MHA MacIntyre Hudson, who spoke on Brexit and customs with his colleague, Alison Horner, at ICAEW’s Virtually Live conference.
“If you're exporting into the EU, you're going to need to make an export declaration from the UK from day one,” Thurston explains. “There'll be an import declaration into the EU with potential for customs duties depending on what happens with any trade agreement. So everything outside the UK will be classed as a third country import and export. That's not going to change.”
The UK government has recently released its Border Operating Model. Within that, there was some facilitation for businesses that allows them to delay making import declarations for up to six months from the first of January. This gives them time to bring in people who can deal with customs declarations.
It also allows businesses the space to get their finances in order. The UK will also introduce postponed VAT accounting for traders importing into the EU and the rest of the world. “If businesses are going to do the delayed import declarations, they need to put it on their records,” says Thurston. “The last thing you want is to delay for six months and then either forget about it or not have sufficient records to be able to create an import declaration.”
Northern Ireland is a whole other issue. It is constantly developing and there are big questions about how it will work, particularly given the ongoing discussion around the UK Internal Market bill over the few days.
For manufacturers, there are also trading standards to consider. Organisations will need a UK trading mark or standard, but if they’re importing into the EU, they will need to adhere to EU standards as well.
“If you're doing a lot of your business with the EU, you wouldn't have had any customs considerations before. All of a sudden, you’re liable for customs declarations, potentially VAT customs duties, changes in product markings. It's a lot of work for companies to consider and takes months to get into place. So if they've not looked at it already, they certainly need to start doing it now,” says Thurston.
Lockdown adds to the admin
Preparation time is just one area where COVID has proved to be a problem. Companies would likely have prepared themselves during the summer. Instead, they were trying to stay afloat during lockdown, so deadlines are very tight. It is a significant admin cost, which some businesses may not have factored into their planning. This goes for both entities importing goods into the EU and those exporting goods as well.
“Depending on their trading terms, they might need to VAT register in Europe and have an economic operator number as well,” says Thurston. “They might need a place of business or fiscal representative in the EU. These are all extra considerations and costs that companies will have to incur to be able to trade with the EU.”
Businesses are aware that they need to do something, says Thurston, but not all of them know what they need to do in terms of the procedures they need to have in place to mitigate any customs duty – there’s a risk that they may need to pay duty twice. According to Thurston, a lot of businesses are well behind where they need to be in their knowledge. Companies need to act now, and swiftly.
“We're speaking to our colleagues in the Netherlands who are involved in arranging VAT registrations. For customs purposes, we're advising clients to make sure you get a freight agent locked in, because of the capacity restrictions that they've got. Make sure you do have somebody to make those declarations from the first of January. Otherwise, you're going to be stuck at the port.”
Finance teams ‘should expect’ customs work
MHA MacIntyre Hudson is looking closely at the changes to the border model and the effects it might have. There is a custom grant available through HMRC for those that need to train staff or invest in software to do customs declarations. Finance teams should expect customs work to fall on their shoulders, says Thurston. It was never that important previously, but it will become more of an issue.
According to Thurston, it’s vital you have a comprehensive understanding of your supply chain – where goods are coming from and where they’re going to. Then work from that to establish what your customs and VAT requirements are.
“If all you do is import, it's just knowing what your trade terms are and where the goods are coming from,” he says. “It might be that all of a sudden, the company benefits from lower duty rates. There are potential benefits for companies that just trade with the rest of the world, that duty liabilities are going to drop.”
It will be toughest on companies that solely trade within the EU. “All of a sudden, they will have to potentially make several hundred import and export declarations a day. That is an investment in time, staff and knowledge. The important thing is to understand how much of that you need to invest to make sure you retain compliance and don't get a massive tax bill.”
Visit ICAEW’s dedicated Brexit Hub to find a range of resources to help you prepare for future trade during this transition period.