Brexit: VAT & Customs Duties Smart decisions. Lasting value. Brexit: VAT & Customs Duties

Agenda Brexit Unknowns Current Position Possible Models Key Risks “No Remorse” Actions

Brexit Unknowns EU caselawand rights Import tariffs and admin procedures Future trade model EU VAT registration and refund system Use of Simplifications Transitional period

Brexit Unknowns The lack of clarity has led most businesses to take a “wait and see” approach. Our recent survey following our webinar revealed that: 80% have taken no steps Only 4% had made practical changes The biggest worries were: Regulatory change (22%) Availability of staff (22%) Delays at border (21%) Systems & process change (16%) However business are now waking up and taking active steps to mitigate the possibility of “no-deal”.

Current Position VAT VAT administration is easier when trading as a member of the EU with other member states. EU movements do not require the physical payment of VAT on acquisition whereas imports from outside the EU do. Record keeping requirements for imports and exports are different and more extensive than for EU transactions and are governed by UK law and not EU principles. EU law gives taxpayers certain rights which cannot be infringed by domestic legislation VAT rates and exemptions are constrained by EU Directives – this will not be the case should the UK leave the EU. Duty EU movements do not attract customs duty, whereas imports from the rest of the world do. Once goods are entered into free circulation they can be moved duty free around the EU. Government has issued a number of guidance papers to manage a no-deal scenario It remains unclear whether the UK will be part of a customs union with the EU The treatment of UK companies if outside the EU on 29th March is also unclear

Potential trading models – the original ideas 1 Part of the EEA Tariffs apply Retain access to single market, But at a price e.g. Norway 2 Negotiated bilateral agreement Tariffs apply Limited access to the single market, at a price e.g. Switzerland 3 Advanced free trade agreement Tariffs apply Reduced access to single market (goods only) Must accept EU rules e.g. Canada 4 Fall back option Tariffs apply No preferential access to single market 53 new trade agreements to negotiate China?

Potential trading models – possible reality? The two easements for trading with the EU can be broadly summarised as follows: VAT – access to the Single Market (may require acceptance of freedom of movement). Duty – single customs area (may not be possible to agree trade deals with non-EU countries). It appears increasingly likely that one or both of these easements will not be available following the UK’s exits from the EU if a deal close to the current Government position is passed, or if the UK leaves with no-deal. As such businesses are now considering what steps they should take to protect the integrity of the supply chains from 29th March. A clear move from a “wait and see” to a “just in case” approach.

Supply Chain Disruption Key risks Employees Increased Tax Burden Supply Chain Disruption Goods held at port. Payment arrangements. Double charge to duty Increased valuations for duty Profits in different jurisdictions Withholding taxes Future needs Concerns of EU nationals

“No remorse” actions Supply Chain Tax impact Employees Incorporate EU company and assess the impact on corporate group and infrastructure Open overseas bank account Apply for AEO/”trusted trader” status Increase inventory held in key EU locations Consider appointing a fiscal representative in the EU countries of importation and registering for VAT Tax impact Consider impact of increased sales price from UK to EU for duty purposes where UK is currently a conduit for sales from outside the EU to countries in the EU. Consider use of customs warehouse, a duty deferment scheme, and other simplifications such as Inward Processing Relief (IPR) Review and understand what EU VAT reliefs and simplifications you currently rely on Consider whether withholding taxes could be an issue post Brexit and consider scope to prepay Employees Review the workforce requirements to support your business plan Consider support to EU nationals in your workforce

Questions?

Keri Pay, VAT Partner Office: +44 (0)121 543 1922 Mobile: +44 (0)799 002 2848 Email: keri.pay@crowe.co.uk