Hack a no-deal Brexit

After 11pm on the 29 March, HMRC estimates that 245,000 UK businesses will face over £6 billion in new customs declarations costs, indeterminate and irrecoverable tariffs and new VAT liabilities. This will be the result of a no-deal Brexit which is the path the UK is now locked into under the course of international public law.

This outcome may still be delayed by a compromise on the Brexit Withdrawal Agreement or an extension of the leaving date. But these costs and new bureaucratic requirements are still impending as a consequence of Brexit and leaving the EU Customs Union and EU VAT regimes.

Here is how to ‘hack’ the worst of this rupture, including some special schemes and grants from HMRC, and strategies to reduce extra tax reporting.

Lock down tariff charges

One of the major expenses of a no-deal Brexit will be the overnight imposition of irrecoverable import tariffs on goods coming from the EU 27. Getting the estimation and reporting wrong is expensive and will lead to potential delays on moving goods in transit. HMRC has now confirmed in the past week that it will make available free confirmations of tariff codes for any UK company post Brexit. These Binding Tariff Information decisions can be obtained from HMRC by sending in detailed product descriptions and catalogues.

Help on new customs declarations

HRMC believes the number of new customs declarations required for imports from the EU 27 after a no-deal Brexit will rise five-fold to 255million per annum. Over 200,000 businesses will have had no experience of this reporting requirement. Here are some measures to cope with the new burden:

• HMRC is offering training grants for employees to attend customs declaration courses
• Businesses can claim IT upgrade awards to automate the new obligations to complete customs forms
• Alternatively, customs agents can be appointed to complete the declarations – they typically charge between £5 and £55 per filing depending on the complexity.
• Anyone selling goods to the EU will now need an EORI number for the declarations whether they are doing them or passing them to an agent. This application on HMRC’s portal takes 10 minutes, and will be approved in under a week.

Avoid customs clearance delays

There has been much talk in the media about long and expensive delays to goods arriving at UK ports. But HRMC offers some special accreditations to businesses to limit these:

• Authorised Economic Operator status is the ‘speedy boarding’ equivalent for clearing goods into the country. It requires quite a bit of form filing, but, once granted, it ensures goods are expressed through customs and supply chains are operational.
• Customs Freight Simplified Procedure consolidates all customs reporting and declarations into a single month-end process. This is well suited to smaller businesses, and effectively reinstates the pre-Brexit Customs Union easy clearance.

Limit import tariffs

UK imports will become liable to tariffs for the first time under the World Trade Organisation rules. However, there are several ways to manage the cash flow impact of this, and avoid them altogether in some circumstances. HMRC has a range of duty suspension schemes, including bonded warehouses, where businesses can bring goods to the UK and trade with customers without any duties or import VAT becoming due.

Avoid import VAT cash flow losses

As the UK will also be leaving the EU VAT regime, imports into the UK will be subject to 20 percent import VAT. However, last week the government published legislation to allow for ‘postponed accounting’ of this cash payment and a simple declaration of the VAT in the next VAT return. Add the import VAT into Box 1 of the VAT return; and subtract the same amount in Box 4. That way there is no cash flow funding required.

Limit the number of new foreign VAT registrations and compliance costs

Following a no-deal Brexit, an estimated 27,000 E-commerce sellers of goods to EU consumers will lose their ‘distance selling’ VAT registration thresholds. This limits the number of foreign VAT registrations they require in the early stages of their growth. In addition, over 100,000 other businesses of all sizes selling B2B and B2C will be obliged to appoint expensive fiscal representatives in most EU countries where they have an existing VAT number. The costs of the loss of these simplifications will be very significant: the European Commission estimates that each registration costs £5,000 per annum.

To mitigate this, consider forming an EU trading subsidiary in one of the EU 27 countries to channel sales through. This will reinstate your EU status for VAT purposes, and mean you will have minimised extra foreign VAT charges can compliance expense.

Get that last VAT reclaim done by 31 March

Another consequence of a no-deal Brexit is the immediate loss of the online EU VAT reclaims process via HMRC. This enables simplified EU VAT recovery on expenses like travel, hotels, exhibitions etc. Post-Brexit, this will have to change to the old paper invoice-based system, and it is far from clear that the regulatory reciprocity agreements will be in place between the UK and each individual EU27 state. So this will mean lost VAT. It is therefore imperative that UK companies complete their last online VAT reclaims by 31 March, the last open deadline.