Brexit & VAT/Customs

It is likely that the UK would cease to be part of the “customs union” in the event of a Brexit.  That means goods moving between the UK and the EU would be subject to customs procedures.  It would be important for the UK to negotiate either no or very low customs duties and simplified customs procedures with its European trading partners.  The fall-back position for imports from the UK to the EU would be the WTO “most-favoured nations” duties which although significantly lower than what they were historically , would still need to be reduced further in order not to put the UK in a competitively disadvantaged situation.

As far as VAT is concerned, Brexit would mean that the UK would be placed outside the territorial scope of EU VAT and become a “third country”.  This means the UK could decide its own VAT rates, reliefs and manner of charging VAT which could have some advantages (e.g. zero-rating on some products) for domestically-focussed UK businesses.  However, it would be in the interests of UK businesses trading with the EU for the UK government to negotiate and implement a set of VAT rules which are “aligned” or are a “mirror image” of current EU VAT law.  One of the significant areas of concern is the imposition of “import” VAT when UK goods enter the EU or vice versa.  Currently most B2B movement of goods from other EU member states to the UK and vice versa are VAT neutral transactions as “zero-rating” and “reverse charge” VAT accounting apply.  These cash-flow neutral  intra-community “acquisitions” and “despatches” will be replaced by transactions having “import” VAT consequences unless suitable agreements are negotiated.

Contact RKG Consulting to find out more about the VAT and customs implications of Brexit.


A: Access to ‘Single Market’

Scenario: Assuming the UK does not join the EEA, it is expected it will no longer have access to the EU “single” or “internal” market.

Effect: In the absence of bi-lateral agreements, UK customs duty will apply to goods imported from the EU and EU customs duty will apply to goods imported from the UK. This means increased cost of goods imported into the UK and for UK goods sold to the EU. There will also be increased compliance costs and red-tape with potential delay of goods at borders. This will affect MNCs trading in goods from / into the UK and for UK companies selling or buying goods from EU member states.

It is hoped the UK will retain rights to access the single market either via membership of EEA/EFTA or concluding other bi-lateral trade agreements.


B: Access to EU FTAs

Scenario: The UK will no longer be able to access EU Free Trade Agreements (FTAs) with non-EU or “third countries” such as Chile, South Africa, Turkey, South Korea and Mexico as well those in the pipeline such as with USA, Canada or Japan.

Effect: UK exports and imports may be subject to significant customs duty, tariffs, levies and increased compliance costs and act as a barrier to trade. Although negotiating separate trade agreements is a long process, the UK will benefit from independence in the negotiating process and can structure the agreements to suit its own requirements. UK MNCs relying on EU FTA’s as well as UK companies buying from or selling to non-EU countries with FTAs are expected to be impacted.


C: Union Customs Code

Scenario: The Union Customs Code and EU regulations will no longer apply to the UK in the event of Brexit.

Effect: New customs regulations will be required for the UK and currently no one knows what this will look like. Due to lack of access to the EU customs code which does currently provide reliefs and harmonisation, businesses would face increased customs duty, higher administration costs of imports / exports both from / to the EU and non-EU countries. Loss of special reliefs and measures such as inward-processing relief, AEO status , no referral to the CJEU and loss of EU co-operation and mutual agreements. MNCs with cross border supply chains and exposure to EU customs procedures would be affected.

Ideally the UK should put in place a new customs regime which “mirrors” the EU model and benefits from reciprocity. However, no one knows if such measures will reach agreement and how long it will take.


D: Anti-dumping measures

Scenario: EU anti-dumping legislation will no longer apply to the UK.

Effect: Increased competition and price pressure from foreign competitors is likely to result in the absence of “clout” that a large trading block such as the EU can muster. If the UK introduces its own anti-dumping measures, “tit for tat” retaliation or pressure on other trade deals being negotiated might result, driving the UK into a corner or compromising position. Certain UK sectors such as industrial / automobile, steel or energy products might be affected adversely.


E: Trading with EU countries

Scenario: Currently, the VAT “intra-community” trading regulations and simplifications apply in that for B2B cross-border trade, VAT is not charged on “acquisitions” from a supplier in another member state nor on sales “despatches” to a EU customer. Provided the supplier / customer VAT numbers are recorded on invoices and goods leave the territory of the relevant member state within a prescribed time period and shipping documentation is retained, “zero-rating” for VAT applies.

Effect: Brexit changes this arrangement. Trading with EU member states will now constitute “imports” and “exports” and the possibility of import VAT being charged in the destination countries leading to extra costs and increased compliance burdens and delays. Simplified invoicing arrangements such as “triangulation” or avoidance of VAT registration throughout the EU by a community business registered in one member state will no longer apply to the UK. There will be relief from Intrastat reporting requirements which will save time and costs unless the UK introduces an exact mirror image of EU VAT law in all areas. MNCs with UK/EU supply chains as well as UK companies selling or buying goods or services from EU will be affected.


F: Sector specific schemes no longer apply

Some sector-specific EU VAT schemes such as the Tours Operators Margin Scheme (TOMS) will potentially no longer apply which might have positive effects on UK businesses.  For e-commerce businesses selling low-value products there is a EU proposal to withdraw the €22 VAT relief.  The UK currently grants £15 VAT relief (Low Value Consignment Relief – LVCR) for low value products imported from outside the EU other than from the Channel Islands.  Brexit might mean retention of the LVCR for the UK compared to other member states who are set to lose it if the EU proposals are enacted.