Government sets out customs vision post-Brexit

The Government is preparing for a number of eventualities, which it detailed in a Position Paper released today (August 15).

It outlined two preferred options and also said it would prepare for a standalone customs and excise system if agreement with the EU was not reached. This would mean the UK would impose VAT and customs duties on imports from the EU, and the EU would do likewise to UK exports.

The Government also proposed a transition period of unspecified duration after 2019, during which the UK would negotiate trade deals with other countries, while customs rules between the UK and the EU would be the same or similar to current arrangements.

The Government summarised its two preferred options as:

● A highly streamlined customs arrangement between the UK and the EU, streamlining and simplifying requirements, leaving as few additional requirements on EU trade as possible. This would aim to: continue some of the existing arrangements between the UK and the EU; put in place new negotiated and potentially unilateral facilitations to reduce and remove barriers to trade; and implement technology-based solutions to make it easier to comply with customs procedures. This approach involves utilising the UK’s existing tried and trusted third country processes for UK-EU trade, building on EU and international precedents, and developing new innovative facilitations to deliver as frictionless a customs border as possible.

● A new customs partnership with the EU, aligning our approach to the customs border in a way that removes the need for a UK-EU customs border. One potential approach would involve the UK mirroring the EU’s requirements for imports from the rest of the world where their final destination is the EU. This is of course unprecedented as an approach and could be challenging to implement and we will look to explore the principles of this with business and the EU.

The Government also said it would seek to ramp up technology-based solutions and begin “negotiating mutual recognition of Authorised Economic Operators (AEOs), enabling faster clearance of AEOs’ goods at the border”.

The Government acknowledged some of its proposals were “innovative and untested … that would take time to develop and implement”.

Some of the proposals seem to point to an increase in red tape.

For example, the paper says: “There would need to be a robust enforcement mechanism that ensured goods which had not complied with the EU’s trade policy stayed in the UK … or a repayment mechanism, where imports to the UK paid whichever was the higher of the UK’s or the EU’s tariff rates and traders claimed a refund for the difference.”

This would mean traders that used the UK as a gateway for goods into the EU would have to claim cash back from HMRC if the UK tariff rate varied from that of the EU.

The Government’s 16 page paper can be downloaded free here. The Government is welcoming views on aspects of its proposal.

Alison Horner, VAT partner at MHA MacIntyre Hudson, says: “Today’s announcement is a very bold step from the UK government, especially given the EU’s public stance on the single market and the clear message that Brexit means an exit from the associated free trade arrangements. But the step is very much needed to get us to a workable transitional agreement.

“Without decisive action, we appear to have only one outcome, defaulting to the World Trade Organisation’s (WTO) customs duty tariffs. The Government’s understanding of the practical implications of this outcome is finally becoming evident, which should be reassuring for businesses. 

“A Free Trade Agreement (FTA) is what all UK businesses who deal with European trade really want. It’s also better for UK consumers, who, without an FTA, could for example be faced with an additional 10% Customs duty cost when they buy a European car. Businesses trading with the EU may also encounter administrative snarl ups, similar to those seen recently with holiday makers at passport control in some EU destinations.

“Today’s proposals are only a starting point and we think that the retail and motor industries in particular will lobby hard for a sensible agreement, as it affects both importers and exporters of goods throughout Europe. In the meantime, businesses should continue to assess the potential worst-case scenarios and review WTO tariff codes for their intra-EU supply chains, just in case.”