March 2019 is when the UK is due to leave the European Union and there is still much to be decided.
Nowadays it is very straightforward to buy goods from a business in the EU. An order is placed and the goods shipped to the UK. It is more difficult when buying from a business outside the EU because of the need to submit Customs declarations.
A hard Brexit will make it more difficult to trade with other EU businesses. This is because goods bought from businesses in the EU will then be ‘imports’ in the same way as a purchase from say China is an import.
If goods bought from other EU countries must be dealt with as ‘imports’ the Chartered Institute of Taxation says the likely consequences are as follows:
‘This is a significant shift for business in terms of cash flow, system, processes, supply chain efficiency etc. Cross border movement of goods will require import VAT to be paid and import declarations will need to be made, typically import VAT can then be reclaimed, so businesses will need to obtain the relevant evidence in order to secure a refund – unless simplifications are in place. The reality of this is cost and time – both financially and administratively.’
If this is the outcome, the Chartered Institute of Taxation estimates that the number of customs’ declarations will rise ‘from 50 million to 300 million’. This creates a major processing and logistical problem for HMRC and many doubt that HMRC are capable of getting all the necessary systems and people operational by March 2019.
This is one of the reasons why there is much talk of the need for a transitional period.
The EU is proposing a transitional period of 21 months during which not much would change for businesses. During the transitional period trade with other EU countries would continue as before and in particular without the need for customs’ declarations. However this comes at a price.
The price proposed by the EU is that the UK will continue to pay its contributions to the EU budget, accept the EU laws but have no input into the making of these laws, continue to accept free movement of people etc.
The EU has published it views of what happens in the event of the EU and UK not reaching a negotiated settlement before 29th March 2019. The views are in a press statement available at https://ec.europa.eu/taxation_customs/uk_withdrawal_en
In the brief the EU says that ‘Unless a ratified withdrawal agreement establishes another date, the United Kingdom will become a ‘third country’ as of 30 March 2019…’.
The EU go on to say what this means in practice. For example they say without a withdrawal agreement ‘Goods…brought into the customs territory of the EU from the United Kingdom or are to be taken out …to the United Kingdom are subject to customs supervision …This implies that customs formalities apply…’
Whilst all this is going on the EU continues to plan VAT changes for 2019 and 2021.
