VATLive > Blog > Europe > Is Brexit ‘Essential’? Coronavirus delay to the transition now likely

Is Brexit ‘Essential’? Coronavirus delay to the transition now possible

  • Mar 17, 2020 | Richard Asquith

The Brexit transition period deadline of 31 December 2020 is possibly to be extended as a result of the coronavirus epidemic.  The UK will probably remain inside the Single Market, Customs Union and VAT regime for an extended period into 2021. Latest negotiations have been paused this week.

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With countries now going into lockdown, it just seems a question of when the U.K. will request a Brexit delay, and how the Government will manage the political optics. The Withdrawal Agreement deadline of 30 June for an extension application will focus minds. Ruling out a prolonged extension, whilst the world attempts to manage and recover from a massive economic blow, can only be a short-term position.

Brexit preparations were already consuming government

The U.K. has over 25,000 civil servants working on Brexit preparation. This involves pressing public policy challenges requiring cross-government collaboration to bring about effective measures. According to the National Audit Office, the Treasury made available £6.3 billion of additional funding in the past three years to cover the costs of the U.K. leaving the E.U. with or without a trade deal.

But there has only been relatively limited engagement with businesses, who complain of insufficient details on necessary preparations for the new customs, tariffs and VAT rules for goods, or restrictions on services being sold into the E.U. after 31 December 2020. 

The 11-month transition period window was always going to be impossibly short for a thorough Free Trade Agreement negotiation, resolving the future trade arrangements between the UK and E.U. The start this month of the negotiations had already revealed complexities around E.U. marketplace access for UK businesses, and the U.K.’s continuing alignment with EU standards. The Northern Ireland border in the Irish Sea also is becoming the intractable puzzle again. The UK’s lack of vision for its future relationship has already hit the EU’s dogged demands for a straightjacketing regulatory framework settlement.

UK and Brussels pause Brexit negotiations as Covid-19 tightens grip

With Europe now the epicentre of the COVID-19 pandemic, governments and businesses are limiting workload to ‘essential’ activities only. Most workers are being instructed to work from home either on voluntary or compulsory basis. The 200 E.U. and U.K. negotiators have suspended their planned meetings because of the Coronavirus outbreak. With the U.K. not expected to hit the peak of the crisis until May or June, any meaningful resumption is unlikely.

This raises the question of whether Brexit negotiations or preparations are ‘essential’? As the situation looks certain to worsen, both the U.K. and Brussels are scaling back negotiations, and will not have the focus nor resources for any meaningful preparations.

A get-out-of-Brexit free card for UK?

‘Leave’ supporters will immediately call foul if the U.K. were to apply for a postponement of the ending of the transition period. Another Remainer conspiracy to hold up Brexit? However, since the U.K. has now left the E.U. formally, this holds little weight. It is now merely a matter of the ‘Get Brexit Done’ philosophy that the transition period must end this year. The incredible strain on resources and society that the next few months will generate means the U.K. has the perfect excuse to ask for a transition extension. In the E.U, the U.K. will find, for once, a counterparty only too willing for the same common Brexit outcome.

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VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He can be contacted at: richard.asquith@avalara.com. He is part of the European leadership team which won International Tax Review's 2019 Tax Technology Firm of the Year. Richard qualified as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.

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