UK Brexit Taxation Bill Leaves Businesses at Risk

Avalara’s Richard Asquith, VP Global Indirect Tax,examines the impact the post-Brexit VAT Bill will have on British business

The Bill implementing the UK’s post-Brexit customs and VAT regime passed its second reading in the House of Commons earlier this year, with the preliminary statute preparing the country to take full governorship of its customs and VAT regimes from 30 March 2019, when the UK is set to depart the European Union. The details in the Bill are thin and do not attempt to second-guess the eventual trading and taxation model. However, one risk that the Bill has exposed is that some 132,000 British trading businesses will face major new VAT obligations and cash delays as a result of Brexit.

The Bill also gives considerable and unprecedented delegated powers to the government so that it can swiftly, and freely, adjust the final legislation as Brexit looms. The government’s justification for these so-called ‘Henry VIII powers’is that “framework” primary legislation, with supplementary secondary legislation, is usual practice for indirect taxation.

Brexit taxation risks come to the fore

The Bill will enable the establishment of the necessary standalone customs, VAT and duties regimes and international trade remedies, including the right to charge customs tarrifs on imports, the right to classify goods for duties, the ability alongside control over setting quotes and other non-tariff barriers to trade. Currently, the UK is a member of the EU Customs Union and EU VAT regimes, which means goods moving between the UK and other EU member states are free from customs duties, and sold on a zero-rating for VAT purposes on business to business transactions. However, the Bill states that post-Brexit all trade to and from the rest of the EU will be classified as imports, and therefore subject to customs and import VAT for the first time. This will cause considerable delays at ports in both directions as goods will need to be meticulously checked.

The EU currently acts for the UK and all member states in cases where there are alleged unfair trade practices by other countries. The Bill puts in place a UK trade remedies system to carry out investigations into allegations of ‘dumping’ and unfair subsidies, and to propose remedies. This new UK arrangement will replace the EU scheme and is set to be implemented by new public body, the Trade Remedies Authority (TRA).

Remedial proposals to tax threats

The Bill does leaves a broad degree of flexibility for the government to negotiate and take on the above new challenges, which threaten to pose significant new compliance obstacles and cash-flow risks for thousands of businesses.

The options for the government include the possibility of remaining in the Customs Union; the introduction of a VAT deferment scheme – similar those operated in the Netherlands, Belgium, Czech Republic and elsewhere; and simplifying and broadening the promotion of the internationally-accepted Approved Economic Operator (AEO) scheme.

AEO is the customs and supply chain accreditation, which demonstrates best practices in customs duty reporting and goods’ security management. It validates that the business has undertaken stock control and security checks against misstatements on declarations or tampering of goods. It also encourages EU customs officials to give quicker clearance on goods, and reduce checks and delays. To date, only around 600 businesses have applied for this scheme ahead of Brexit. Just two accreditations were issued in December 2017, and none in January 2018.

Tackling trade risks

As it stands, businesses have undertaken limited preparations for Brexit. This is understandable given the lack of progress on the exit trade and taxation deals.  But the Bill has laid bare likely risks for thousands of businesses which are calling for central action. The government could help alleviate many of the punitive tax risks of Brexit by introducing a VAT payment deferment scheme to help cash flows, or boosting the uptake of the so-far disappointingly embraced Approved Economic Operator (AEO) scheme. Whatever the outcome, there will need to be a clear plan before the Summer of 2018, that is well communicated to the thousands of businesses that these changes will affect.

Avalara’s Richard Asquith, VP Global Indirect Tax,examines the impact the post-Brexit VAT Bill will have on British business

The Bill implementing the UK’s post-Brexit customs and VAT regime passed its second reading in the House of Commons earlier this year, with the preliminary statute preparing the country to take full governorship of its customs and VAT regimes from 30 March 2019, when the UK is set to depart the European Union. The details in the Bill are thin and do not attempt to second-guess the eventual trading and taxation model. However, one risk that the Bill has exposed is that some 132,000 British trading businesses will face major new VAT obligations and cash delays as a result of Brexit.

The Bill also gives considerable and unprecedented delegated powers to the government so that it can swiftly, and freely, adjust the final legislation as Brexit looms. The government’s justification for these so-called ‘Henry VIII powers’is that “framework” primary legislation, with supplementary secondary legislation, is usual practice for indirect taxation.

Brexit taxation risks come to the fore

The Bill will enable the establishment of the necessary standalone customs, VAT and duties regimes and international trade remedies, including the right to charge customs tarrifs on imports, the right to classify goods for duties, the ability alongside control over setting quotes and other non-tariff barriers to trade. Currently, the UK is a member of the EU Customs Union and EU VAT regimes, which means goods moving between the UK and other EU member states are free from customs duties, and sold on a zero-rating for VAT purposes on business to business transactions. However, the Bill states that post-Brexit all trade to and from the rest of the EU will be classified as imports, and therefore subject to customs and import VAT for the first time. This will cause considerable delays at ports in both directions as goods will need to be meticulously checked.

The EU currently acts for the UK and all member states in cases where there are alleged unfair trade practices by other countries. The Bill puts in place a UK trade remedies system to carry out investigations into allegations of ‘dumping’ and unfair subsidies, and to propose remedies. This new UK arrangement will replace the EU scheme and is set to be implemented by new public body, the Trade Remedies Authority (TRA).

Remedial proposals to tax threats

The Bill does leaves a broad degree of flexibility for the government to negotiate and take on the above new challenges, which threaten to pose significant new compliance obstacles and cash-flow risks for thousands of businesses.

The options for the government include the possibility of remaining in the Customs Union; the introduction of a VAT deferment scheme – similar those operated in the Netherlands, Belgium, Czech Republic and elsewhere; and simplifying and broadening the promotion of the internationally-accepted Approved Economic Operator (AEO) scheme.

AEO is the customs and supply chain accreditation, which demonstrates best practices in customs duty reporting and goods’ security management. It validates that the business has undertaken stock control and security checks against misstatements on declarations or tampering of goods. It also encourages EU customs officials to give quicker clearance on goods, and reduce checks and delays. To date, only around 600 businesses have applied for this scheme ahead of Brexit. Just two accreditations were issued in December 2017, and none in January 2018.

Tackling trade risks

As it stands, businesses have undertaken limited preparations for Brexit. This is understandable given the lack of progress on the exit trade and taxation deals.  But the Bill has laid bare likely risks for thousands of businesses which are calling for central action. The government could help alleviate many of the punitive tax risks of Brexit by introducing a VAT payment deferment scheme to help cash flows, or boosting the uptake of the so-far disappointingly embraced Approved Economic Operator (AEO) scheme. Whatever the outcome, there will need to be a clear plan before the Summer of 2018, that is well communicated to the thousands of businesses that these changes will affect.