Brexit: What happens if UK leaves the EU with no deal?
In mid-July, the UK government published more than a hundred-page-long document called the UK-EU Future Relationship White Paper, providing information on how the relationships between the UK and the EU should look like with respect to the economy, security, cross-border cooperation and institutional arrangements. In the second half of August, however, the government presented a batch of new government planning papers that should prepare the public for a no-deal Brexit.
The first planning papers on a no-deal Brexit were presented by Brexit secretary Dominic Raab on 23 August, with more (80 in total) due to be published by the end of September. Some of these papers deal with VAT, trading with the EU, and the customs classification of goods. The scenario in which the UK exits the EU with no deal is unlikely but it is the government’s responsibility to prepare for all alternatives, including a no-deal Brexit, says the government in the opening.
In the paper on VAT, the UK government states that VAT rules will not change for the majority of businesses. The UK is planning to apply the existing VAT system and make every effort to preserve as much as possible the condition in which it operates today. The classification of goods codes in customs tariffs should not change.
For imports of goods to the UK, the government intends to implement a deferred duty to pay VAT, in practice meaning that UK importers registered as VAT payers will be allowed to report and pay import tax within their VAT returns and not at the moment goods reach the UK border. This should apply to imports from both inside and outside the EU.
The document also points out that the VAT exemption of shipments of negligible value will no longer apply to goods from the EU, i.e. any goods in parcels from the EU will be subject to VAT. VAT on goods whose value is GBP 135 or less will be paid by foreign suppliers who will also have to register for VAT in the UK; VAT on goods whose value exceeds GBP 135 will be collected from the UK recipients, which is the current system used for shipments from countries outside the EU.
The government experts also added some practical advice to be taken into account by companies importing goods from the EU or exporting goods to the EU if the UK leaves the EU with no deal:
- register the UK EORI number
- make sure that contracts with business partners and the agreed INCOTERMS reflect the fact that the parties concerned act as the importer or the exporter
- assess whether to hire a customs agent, carrier or logistics service provider to ensure all related administration
- ascertain whether a licence for the import or export of the goods at issue is required.