Although the UK has not officially abandoned trade negotiations with the EU, statements made by the Government over the last few days confirm that it does not expect to reach a significant free trade deal before the Brexit transition period ends on 31 December 2020. As a result, the Government has now launched a new ‘Time Is Running Out’ campaign, urging businesses to step up preparations for a hard border with the EU, including changes to customs and VAT.
Since the Brexit referendum in 2016, the Government has led us up a rocky path to get to this point and the full picture is still not complete. While The Border Operating Model, launched in summer 2020 and updated last week, is a comprehensive guide to the phasing-in of a hard customs border during 2021, there are many concerns about how well this plan will work in practice, especially as the inland customs sites and some of the crucial government IT systems needed to operate the border between Great Britain and the EU have not yet been created.
Other examples of VAT and customs issues that have not been fully addressed include services, for example how Brexit will affect users of the Tour Operators Margin Scheme, and the future VAT treatment of B2C services supplied to customers in the EU.
Also, while grants for the training, recruitment and IT investment needed to complete customs declarations are helpful, they cannot address the steep and lengthy learning curve for newly trained staff and the likelihood that the customs agent and advisory market will be heavily oversubscribed.
Most of all, the Internal Market Bill, whose controversial powers to override parts of the Northern Ireland Protocol are currently being considered in the House of Lords, has cast grave uncertainty over customs plans for the Northern Ireland border. While the Trader Support Service has been launched to help guide Northern Ireland businesses through the customs changes, this cannot solve the more deep rooted political problems.
The Government’s messaging concerning negotiations with the EU has in many ways been unhelpful and distracting. For some time, it has talked about using an Australia-style deal as a fallback, without explaining that Australia does not have a trade deal with the EU, and today trade between the EU and Australia operates mainly on World Trade Organisation rules, with customs checks on goods at both borders and full rates of duty on imports. Nevertheless, the Government’s language may, over time, have lulled cross-border traders into thinking an Australia-style deal means something less than a hard border will be in place between Great Britain and the EU in 2021.
As a result, many will be unhappy with the new campaign’s implication that it is businesses who have failed to appreciate the gravity of the situation and have been dragging their feet.
While businesses must keep up with Brexit announcements, which are likely to come hard and fast over the last few weeks, they should take matters firmly into their own hands, rather than hang onto the Government’s every word, and make sure they have cushioned the blow by preparing the basics.
Those trading in goods with the EU should:
Decide how they will make customs declarations (e.g. in-house or using a customs agent)
- Apply for an EORI number
- Apply for a Duty Deferment Account
- Identify commodity codes and tariffs applicable to their goods under the UK Global Tariff
- Check suitability for facilitation procedures (e.g. simplified declarations)
- All cross-border traders should also consider their commercial arrangements (e.g. on contracts or VAT registrations in EU member states)
For more information, see VAT and customs duty as Brexit concludes.