Brexit Report January 2019

As at today (16 January 2019), the UK leaves the EU on 29 March 2019. There will be an impact on businesses; some positive some negative; we’re just not exactly sure what they will be.

As a business owner you must protect your business. Every business is different, but, there are actions you can take to minimise risks and capitalise on opportunities. Here are some key areas for you to consider.

Supply Chain

Businesses must consider how Brexit may affect agreements with suppliers and customers. Supply chains could be impacted by tariff and country of origin requirements. Where goods contain constituents from multiple sources, identification of country of origin rules may change.  Consider whether contracts may need to be amended. Contingency plans are needed to address the possible currency fluctuations, ability to deliver/receive goods and supplies.

Whatever the outcome, customs controls between the UK and the EU will be more complicated and burdensome for businesses than the current system.

Businesses selling to, or importing from the EU should consider the benefits of applying for Authorised Economic Operator (AEO) registration. AEO status is a well-established ‘trusted trader’ customs programme, in place in the EU since 2008. After Brexit it could provide faster customs clearance by offering priority access to companies that have been pre-assessed.

Registering as an AEO enables businesses engaged in international trade to avoid the full administrative and practical burden of dealing with customs controls when moving goods across borders. Benefits for AEOs include centralised, simplified and speedy customs clearance procedures, reduced documentary and physical checks, improved safety and security and self-assessment. An AEO certificate effectively demonstrates that:

  • your role within the international supply chain is secure
  • your customs controls and procedures are efficient and compliant.

VAT

VAT is a European tax which has been implemented into UK law. The UK will be free to decide whether to retain or repeal existing VAT legislation once we leave the EU. So far, the Government has indicated the UK will continue to have a VAT system after it leaves the EU.

Exports

Goods exported from the UK to EU businesses will be treated as an export and continue to be zero-rated. EU member states will treat the associated import in line with their own rules for goods entering from non-EU countries. Businesses must understand the relevant rules to understand the filing, payment and refund mechanisms as the EU VAT refund system will no longer be available. Some member states can be notoriously slow at issuing VAT refunds under the non-EU refund claim mechanism so businesses may wish to review their supply chain to understand where potential cash flow issues arise.

Imports

The VAT rules relating to UK domestic transactions will continue to apply to businesses as they do now. If the Government will agree for UK to stay within the EU VAT area, the existing VAT arrangements will be retained also for a cross-border trade and it would not be necessary to collect VAT at the border.

But if we don’t remain within the EU VAT area, then goods imported from the EU to the UK after 29 March 2019 will switch to the existing rules for imports from non-EU countries.

Businesses will be able to account for their import VAT on the VAT return rather than physically paying it as the goods arrive at the border. Payment of other duties will still be required and businesses may consider applying for the Duty Deferment Scheme to manage their cashflow position and avoid having to pay duties every time a consignment is brought into the UK.  Ultimately duties are not recoverable and so represent a real cost to the business.

To mitigate Brexit risks, on UK businesses importing goods from EU, these businesses may consider the following steps:

  • Setting up a duty deferment account with HMRC, allowing import VAT and customs duty to be paid monthly in arrears, usually subject to a bank or insurance backed guarantee.
  • Opting to file monthly VAT returns. Whilst this will involve additional administration and cost, it should shorten the gap between paying import VAT and reclaiming it as input tax from HMRC.
  • Appointing a fiscal representative to ease administrative and financial burden.
  • Obtaining AEO status for goods to clear customs faster
  • Considering business restructure and/or reviewing supply chain options.

Should you require any assistance with reviewing existing business dealings, particularly where these involve an EU element, then please do get in touch with us.

Bryant House - Friend and Grant Chartered Acocuntants and Tax Advisors

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