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UK Brexit Customs and VAT Bill

  • EU VAT
  • 7 January 2018 | Richard Asquith

UK Brexit Customs and VAT Bill

On Monday 8 January, the UK Parliament has its second reading of the Taxation (Cross Border Trade) Bill, which lays the ground for the post-Brexit Customs, VAT and Excise regimes. The Bill was published on 20 November 2017, and is part of a series of Brexit laws to adjust UK legislation for post Brexit.  This includes the Trade Bill and EU Withdrawal Bills.

The Bill is being presented prior to the conclusion of future relations with the EU after Brexit. It is therefore being constructed to enable modification once the outcome of these negotiations are known. Key components include:

1. Customs Duties

The tariffs on goods being imported into the UK are known as Customs Duties.  As a member of the EU Customs Union, there are no duties on imports or exports between the UK and other member states - only with countries outside the EU Customs Union. The EU also negotiates on behalf for the 28 member states the duties on goods from non-EU countries.

The Taxation Bill will allow the UK to create a post-Brexit customs law and rates, and standalone regime. This includes setting new import rates and goods’ classifications rules. However, the rules will be very similar to the current EU regime to reduce any unnecessary friction with a key UK trading partner.

Clause 31 does, however, provide for the UK to remain / re-enter the EU's Customs Union at Brexit if so negotiated.

2. VAT regime – imposition of 20% import VAT

VAT is an EU competency, and the UK VAT Act mirrors the EU VAT Directive. This has been highly productive in promoting the cross-border sales of goods and services within the EU.

The principle change post-Brexit, and reflected in the Bill, is the abolition of zero-rating of EU VAT on imports (acquisitions) and exports (dispatches). This means that importers will have to pay VAT at the time of clearing the goods into the UK from other EU states. The 20% import VAT will then be refundable in the company’s next VAT return – so this will create a cash flow delay problem.

3. Trade Defence and Remedies

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

4. Delegated Powers for Government – ‘Henry VII Powers’

The Bill also gives considerable delegated powers in relation to the above. This is so the government can quickly adjust the final legislation at Brexit.  The Government argues that “framework” primary legislation with supplementary secondary legislation is usual practice for indirect taxation. For example, customs tariffs includes thousands of different codes which would be impractical to introduce via primary legislation.

Note: since the Bill relates to taxation, it only concerns the House of Commons.

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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 is part of the European leadership team which this year won International Tax Review's 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.