Get ready for life outside the Single Market

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Following the publication of the “The United Kingdom’s exit from and new partnership with the European Union” white paper, it is apparent that the UK is heading towards a “hard” Brexit which will see the UK’s withdrawal from the EU Single Market.  Rarely can a document have the potential to have such a profound effect on the UK and its relationship with its nearest neighbors.

Currently, the UK has access to free movement of goods and services within the EU.  In addition, the EU has a number of free trade agreements (FTAs) with third countries outside the EU. This means that there are no customs duties due on many of the raw materials sourced or finished products sold.

Negotiating new deals will be a complex process

Post-Brexit, the existing EU trade agreements would not apply to the UK and trade terms would be subject to a series of individual agreements with each of the UK’s global trade partners.  Estimates of how long such negotiations will take vary, however, what is clear is that the process will be complex.

Obviously, we cannot prejudge what, if any, additional customs duty costs will arise as a result of these negotiations.  However, until any new FTA is agreed, trade with the EU is likely to be based on World Trade Organisation rules.  This will mean that, at least in the short term, the risk of tariffs and other trade restrictions applying on trade with our ex-EU partners would be greater.  Any additional duty costs that apply will have a direct impact on margins.

Compliance costs will increase

What is clear is that the reporting and compliance burden for trade with our ex-EU partners will increase.  Already for trade with non-EU countries, the May 2016 Union Customs Code changes have resulted in increased burdens for businesses, particularly in relation to the requirement to have a Customs Comprehensive Guarantee (CCG) for duty suspension reliefs.

Post-Brexit, these burdens will also fall on those businesses that currently only trade within the Single Market.  As it is almost 25 years since such businesses had the need to complete customs formalities, the knowledge and expertise needed may no longer be available in-house.

Leaving the EU will also result in the loss of EU VAT simplifications, such as ‘triangulation’ and ‘call-off’ stock.  These simplifications currently help UK businesses to avoid VAT registration requirements in other EU jurisdictions.

What next for UK businesses?

It is vital that UK businesses consider their own circumstances during the 2-year window after the triggering of Article 50.  Our Indirect Tax team is armed with the knowledge and experience to help you to gain a clearer understanding of how your business will be affected.

For more information, contact Alistair Duncan, Director, alistair.duncan@aab.uk