Michael Gove MP has confirmed that EU goods will be subject to import controls at the UK border after the end of the Brexit transition period, currently scheduled for 31 December 2020. In his speech, delivered at a Border Delivery Group stakeholder event on 10 February, Mr Gove also announced that the Brexit easements, promised by the government in 2019 in anticipation of a no-deal Brexit, will not be reinstated to help businesses cope with a hard border at the end the transition period.
Mr Gove’s justification for this is that businesses now have adequate time to prepare for the imposition of import controls. However, over a week later, the government has made no further announcement to confirm precisely which of its Brexit contingency plans for customs and VAT it has abandoned.
The loss of two of these Brexit measures will cause problems for businesses that import goods into the UK from the EU.
Postponed accounting for VAT
This arrangement would have allowed businesses bringing goods into the UK to account for any import VAT due on their VAT return, instead of paying it at the time the goods are cleared for import. If the government has indeed dropped postponed accounting, importers will incur additional cash flow costs, as potentially they will have to fund up to three months’ worth of import VAT before it can be claimed on the VAT return.
Transitional Simplified Procedure (TSP)
Many will also suffer due to the withdrawal of TSP, which was set up to allow importers to make a simplified declaration at the time goods arrive from the EU, then allow a grace period to lodge a full import entry and pay any customs duties. In 2019, HMRC auto-enrolled some 95,000 businesses for TSP in anticipation of a no deal Brexit but now HMRC may drop the scheme altogether. Its withdrawal means that businesses must be ready for the complex task of completing customs entries and to pay any customs duty immediately.
While it was to be expected that the UK would aim to impose a hard customs border between the UK and EU at some point, the government’s approach comes as an unpleasant surprise. It will be hard for the UK to fully agree a comprehensive trade deal with the EU by the end of the year, and harder still to ensure that the necessary infrastructure is in place at ports and airports to operate a customs border from 1 January 2021. Disruption to supply chains seems inevitable, and the removal of postponed accounting and/or TSP will make an already difficult situation even worse for businesses.
In the absence of more detailed guidance from the government, traders who move goods across the border with the EU should continue to prepare for the worst and review or re-evaluate their Brexit plans immediately.
High on the list should be applying for a deferment account, which allows importers to pay customs duty and import VAT on the 15th day of the month in which the goods arrive in the UK. A deferment account must be supported by a bank guarantee, which can be costly and time consuming to set up. Businesses who already have a deferment account because they also import from outside the EU will need to consider increasing their account limit (and of course the associated bank guarantee) to factor in the value of goods they import from the EU.