• Brexit Planning - VAT and Customs
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Brexit Planning - VAT and Customs

25 October 2018

The outcome of the UK-EU Brexit negotiations is still uncertain.
 
However, Brexit preparatory work should not be left to the last minute. Early action can be taken to plan for the worst-case scenario in terms of VAT and customs costs.
 
VAT
 
In the event of a 'no deal Brexit', the Government has announced that it will introduce postponed accounting for import VAT on goods brought into the UK. This would allow businesses bringing goods into the UK from both the EU and non-EU countries to account for any import VAT due on their VAT return, instead of paying it at the time the goods arrive in the UK.
 
Under the EU VAT system currently in force, VAT on B2B arrivals of EU goods is accounted for under the 'reverse charge' procedure on the buyer's VAT return, usually as a nil net tax adjustment. However, if the UK left the EU's VAT system without a contingency plan in place, UK importers would face a liability to pay import VAT (at 20% for many goods) at the time that the goods enter the UK from the EU. They would also have to wait until the next VAT return to recover it as input tax, putting increased pressure on cash flow and working capital. The introduction of postponed accounting, under which businesses will still be able to account for the VAT on their VAT return, is therefore a very important reassurance for UK importers.
 
Although this easement is intended to address the import VAT issues arising from Brexit, i.e. cash flow issues related to goods arriving from the EU, postponed accounting will also apply to non-EU imports. The Government says further guidance on postponed accounting will be published in due course.
 
CUSTOMS COSTS
 
A transition agreement on future customs arrangements has been reached in principle, but will not take effect unless all outstanding matters regarding the overall future relationship have been agreed.
 
In the worst case scenario, the UK and the EU will deal with each other under WTO rules from 29 March 2019, which means that customs duties and customs declarations will become applicable at both ends of UK-EU supply chains. 
 
In the event of a no deal Brexit, the Government says it will introduce its own customs tariff and apply duty to many imports from the EU. Payment of customs duties can only be deferred by use of:

  • A deferment account, which allows businesses to pay their customs charges by a single monthly payment on the 15th day of the month following the month of import, and/or 
  • A customs  warehousing  arrangement, where goods can be stored with customs charges suspended until the time the goods are removed for use. 

However, both are subject to an application process and have stringent authorisation requirements, including a bank guarantee as security for a deferment account. This would create additional compliance and administration costs for importers.

Don’t leave Brexit preparatory work to last minute – as business advisors, we urge you to take action now and to allow us to assist you in planning for the worst-case scenario in terms of customs costs. Contact a member of our Brexit team today.