Last reviewed 10 December 2018
Paul Clarke examines the recently published Partnership Pack aimed at helping businesses to prepare for the “unlikely” event of a no-deal Brexit.
Last month Prime Minister Theresa May presented the 585-page draft Brexit agreement she had agreed with Brussels after many months of negotiation. She suggested that MPs had three choices: accept the deal; leave the EU with no deal or remain in the Union.
With indications growing that the Prime Minister will not be able to muster a majority in Parliament for her deal, businesses are recommended to prepare for the eventuality of the UK having to leave the EU on 29 March 2019 with no deal in place. It would, in that event, have to fall back on World Trade Organization (WTO) rules — but what else will have to change? Some detailed, official advice on this topic has been published by HM Revenue & Customs (HMRC). Partnership Pack: Preparing for Changes at the UK Border after a “No Deal” EU Exit can be found here and is intended to help businesses in their contingency planning. It focuses on how they will need to adapt their business to comply with new systems, processes and controls, and aims to help firms to assess the impact of the increased demand for customs declarations on their business.
The partnership pack complements the 106 specific technical notices published by various government departments in recent months to assist with no deal planning. All this official guidance comes with a commitment that “the Government will work closely with industry to ensure that cross-border activity continues to be conducted in a way that minimises delays and additional burdens for legitimate trade while robustly ensuring compliance”. What follows is a brief summary of the sections in the pack that are most relevant to traders. They all provide an idea of what to expect on 30 March 2019 — if no deal is agreed.
Customs and excise
If the UK leaves the EU on 29 March 2019 without a deal, free circulation and movements of goods between the UK and the EU will end. From 11pm on that day, businesses will have to apply the same customs and excise rules to goods moving between the UK and the EU as are currently applied in cases where goods move between the UK and countries outside the Union (known as “third countries”). This means customs declarations would be needed when goods enter the UK (an import declaration) or when they leave the UK (an export declaration). A separate safety and security declaration would need to be made by the carrier of imports; export declarations will have to include a safety and security declaration.
The Excise Movement and Control System (EMCS) will continue to be used to control the movement of duty-suspended excise goods within the UK, including movements to and from UK ports, airports and the Channel Tunnel. Goods entering the UK from the EU will be subject to the same requirements as third country goods, including, where required, the payment of duty.
The actual duty rates that will apply to each item imported into the UK may be different to the rates currently applied under the EU’s Common Customs Tariff (CCT).
Trade with the EU will be on non-preferential, WTO terms. This means that the EU’s Most-Favoured-Nation (MFN) tariffs and non-preferential rules of origin will apply to consignments between the UK and EU Member States. The EU MFN rates are set out in the CCT, where they are listed as erga omnes (which means “towards all”), rather than stating a specific country.
In the event of no deal, the Government’s aim will be to keep VAT procedures as close as possible to those now in place in order to provide continuity and certainty for businesses. Postponed accounting will be introduced for import VAT on goods brought into the UK, which means that UK VAT-registered businesses importing goods will be able to account for import VAT on their VAT return, rather than paying import VAT on or soon after the time that the goods arrive at the UK border. Low Value Consignment Relief (LVCR) will not be extended to parcels entering the UK from the EU. All goods entering the UK as parcels sent by overseas businesses will therefore be liable for VAT (unless they are free of VAT under domestic rules, for example, zero-rated children’s clothing). For parcels valued up to and including £135, a technology-based solution will allow VAT to be collected from the overseas business selling the goods into the UK.
Guide to importing
This section of the guidance gives access to the application form for the Economic Operator Registration and Identification (EORI) number that importers will need in order to trade after a no-deal Brexit. It also explains how to find the commodity codes needed to classify goods (so that the correct amount of duty can be paid) and the six methods by which it is possible to arrive at the value of the goods. The guide also covers the need to check whether goods are prohibited or restricted in any way and describes how to establish their origin.
Other points covered in this section remind traders to check if they are eligible to use any facilitations (such as Customs Warehousing or Inward and Outward Processing) and explain how to choose the correct Customs Procedure Code (CPC) for goods as well as how to make a customs declaration by completing a SAD (form C88). Businesses are reminded that they are required to keep records for all traded goods declared to HMRC for six years.
Guide to exporting
Again, this section explains the need for an EORI number and commodity codes before going on to detail why a licence may be needed to export goods outside the UK. It gives guidance on choosing the correct CPC for goods and why traders need to register for the National Export System (NES) so that their export declarations may be made electronically. It also describes the use of commercial invoices and other relevant documents which must accompany the goods to the port of exit. Goods must be “presented” to customs before a departure message can be submitted to CHIEF (the Customs Handling of Import and Export Freight system which controls the movement of international cargo). Businesses are again reminded of the requirement to keep records for six years.
Trading with the EU only
Two sections of the pack give advice to traders on what to expect on day one of a “no-deal” scenario if they are solely importing from, or solely exporting to, the EU. As well as repeating information on the need for an EORI number, the first of these (importers) invites consideration on how import declarations will be submitted — either done directly by the trader or through a customs broker, freight forwarder or logistics provider. It describes how the UK Trade Tariff will replace the UK’s use of the EU CCT and reminds traders that they will need to make sure that their carrier, which can be a haulage company or a ferry or train operator depending on the type of traffic, has submitted a safety and security declaration at the appropriate time. This section goes on to outline how the excise process will change, how to deal with import VAT (including VAT on vehicles imported to the UK) and how to use the UK VAT Mini One Stop Shop (MOSS). Importers are reminded that they will no longer have access to the EU VAT Refund System but may continue to claim refunds of VAT from EU countries by using the existing processes for non-EU businesses.
Much of the same information and advice is given in the section on what to expect on day one of a “no-deal” scenario (exporting). This also explains how the excise process will change and how to deal with export VAT before going on to describe what will happen to UK businesses selling their own goods in an EU country to customers in that country. It also includes advice for Northern Irish businesses exporting to Ireland and has sections devoted to the exhaustion of intellectual property rights, trading under the mutual recognition principle and trading goods regulated under the “New Approach” (EU legislation which sets out the essential safety requirements which certain products must meet before they are placed on the EU market).
Trading with the EU and the rest of the world
Another section setting out what to expect on day one of leaving the EU, this time relating to traders who deal both with the EU and with third countries. The rules applying to the latter will broadly apply to the EU in the event of a no-deal Brexit. However, the UK is currently in discussions with the EU in an attempt to retain membership of the Common Transit Convention (CTC) which currently facilitates cross-border movements of goods between contracting parties. This section repeats much of the advice already given in the previous parts of the guide described above. There is additional information concerning existing trade agreements with non-EU countries. The Government is trying to arrange bilateral UK-third country agreements in order to replicate existing EU agreements to keep the same preferential effects with third countries wherever possible. This section additionally covers importing from developing countries under the EU’s Generalised Scheme of Preferences (GSP).
Trading with the rest of the world only
UK customs processes for the rest of the world trade should not be affected by Brexit except, this section explains, that the EU facilitated some trading processes with the rest of the world in order to make them smoother for EU Member States. How VAT accounting processes will change is covered as are changes to excise processes. Some of the information in previous sections — including on existing trade agreements with non-EU countries and importing from developing countries — is repeated.
Supplying services to the EU
Another “what to expect on day one of a no-deal scenario” — this time reminding service providers that trade with the EU will, in that event, broadly follow the same customs controls as businesses trading with the rest of the world. This section describes the changes to VAT procedures (already mentioned in other parts of the package) and repeats the information about exhaustion of intellectual property rights.
Express courier industry and postal services
This short section repeats advice and information provided elsewhere in the package, particularly in relation to how VAT processes and customs processes will change.
Haulage companies operating between the UK and the EU
This guide for those involved in the haulage sector covers the following issues: How the process will change; Transit of non-EU goods within the EU; Dealing with import VAT and Changes to VAT IT systems. It also reminds businesses that they might need to follow the same or similar processes to carry goods between the UK and the EU as they may already do with the rest of the world. Freight operators should also assess the impact of an increased demand for safety and security and customs declarations, the guide continues, and consider both recruiting and training additional staff. Again, businesses are reminded that, if they do not have a UK EORI number, they will have to apply for one.
Ferry/Channel Tunnel operators moving goods between the UK and the EU
In a “no-deal” scenario, they will be treated in the same way as operators transporting goods to and from the rest of the world, with the same filing requirements and consignments being subjected to the same scrutiny. With the exception of accompanied roll-on roll-off (Ro-Ro) transport, where the requirement is on the haulage company, these operators will need to file safety and security declarations for imports. As well as information about Exit Summary Declarations and Entry Summary Declarations, this section largely repeats advice on VAT mentioned in several of the above summaries.
Businesses are reminded that there is likely to be an increase in demand for freight forwarders’ services from traders who had previously only worked within the EU or traded both within the EU and with the rest of the world. Freight forwarders are advised that they will need to know transport information from hauliers — for example, the registration details of the vehicle and trailer that goods are travelling in — and communicate with them if they need to go to a specific inland location, such as a Designated Export Place for certain exports. When using Ro-Ro ships designated to carry wheeled cargo such as lorries, they will need to have information from traders about the goods in order to pre-notify HMRC of consignments. Elsewhere, most of this section repeats information provided in earlier sections on VAT, the need for UK EORI numbers and the UK’s attempt to retain membership of the CTC.
Another group whose services are likely to be in more demand if there is a no-deal Brexit. Its section largely repeats the information provided for freight forwarders and then adds details about managing customs intermediaries’ capacity. Given the expected increase on demand, the Government has provided a one-off investment of £8 million to support broker training and increased automation. The procurement process for establishing contracts with training providers has now begun, with the grant schemes to support upfront costs of training or increased automation expected to be available later this year. Further details will be published in due course.
Ports and airports
EU freight moving through ports and airports will become third country freight, subject to the same rules and procedures as are currently in place for such freight. Ports and airports will need to make sure they are ready to meet the processing requirements of third country trade and customs procedures. They are advised to work with HMRC on implementing an effective streamlined regime.
Trade with the EU will broadly follow the same customs controls as trade with the rest of the world, so the status of EU goods will change. Operators will be able to use their existing warehouses to store goods they have imported from the EU. They should be prepared to support new customers who have not previously dealt with customs matters, the guide suggests.
Temporary storage operators
Temporary storage operators are responsible for physically accepting and releasing the goods into and out of the temporary storage facility, and for collecting data into the temporary storage stock account record on the physical arrival of the goods into the premises. These operators can expect importers of goods from the EU to want to have their goods placed into a temporary storage facility before being placed under a customs procedure or re-exported. They will need to treat these EU goods in the same way as they currently treat goods from the rest of the world.
The pack includes a number of sections relating to those businesses trading in specialist products such as rough diamonds, medicines and medical devices, fluorinated gases and ozone-depleting substances and civil explosives as well as those shipping waste into and out of the EU and selling duty-suspended alcohol, tobacco or fuel in the UK. As well as repeating the general advice given to mainstream traders, these sections provide specific advice on the areas concerned such as, in the case of those importing medicines, a request by the Department of Health and Social Care (DHSC) that they should hold minimum of six weeks’ additional supply in the UK, over and above their business-as-usual operational buffer stocks.
Agrifood, animals and plants
Finally, there are a number of sections covering trade in live animals, endangered species, plants and plant products, timber and timber products, and high-risk food and feed. As with the advice to specialist traders, these sections include much of the information contained elsewhere in the pack together with some particular help for those dealing in these sectors. For example, if the UK leaves the EU without a deal, the Government will ensure a smooth transition by making no changes on day one to current import controls or notification requirements for live animals and animal products imported direct from the EU. The EU system for import notifications — Trade Control and Expert System (TRACES) — will be replaced by a new UK system. Guidance and training material will, the pack states, be available several months ahead of March 2019. For those exporting live animals, it confirms that, to prepare for the potential increase in Export Health Certificates (EHCs), work is underway to make the application process simpler, and ensure there is enough capacity among appropriately trained veterinarians or authorised signatories to approve the additional certificates.
What can you do now?
As the Prime Minister said, several options remain on the table: she may get support for her deal and move on to negotiating a full trade agreement; there may be another referendum or even a general election; or the UK may leave the Union on 29 March 2019 with no deal. Businesses will be left wondering how far they should take account of the advice on offer in the event of that last outcome, particularly given the thought that their efforts will be largely wasted if the Government achieves its stated aims.
However, several things can be done at this stage to help you prepare.
If you are a business, ensure that your employees and customers are aware of the new passport rules that may come into effect in the event of a no-deal exit.
Make sure that you are ready to apply for an EORI number, if that becomes necessary.
Register with HMRC at public.govdelivery.com for email alerts on future developments.
Consider renegotiating commercial terms to reflect any changes in customs and excise procedures, and any new tariffs that may apply to UK-EU trade.
Look at how you will submit customs declarations for EU trade, if required, including whether to engage a customs broker, freight forwarder or logistics provider, or whether to get the right software and authorisations to do it in-house.
If you deal with intellectual property-protected goods, decide if you need to seek legal advice on how a “no-deal” scenario could affect your business model or intellectual property rights.
Check whether the items you export may be subject to control and whether you will need an export licence.
Consider seeking advice from a customs broker, freight forwarder or logistics provider as to whether you could use customs procedures to delay or relieve the payment of customs duty until your goods are ready to be released into free circulation.