In case you missed it, the UK ceased to be a member of the European Union (EU27) on 31 January 2020. In the early part of February 2020, the UK Government began to set out the trading landscape post 31 December 2020. So what does this mean? Gerry Myton, PArtner at Streets Chartered Accountants, explains.
We find ourselves in 2020, a whole year stretching ahead of us with time to plan, prepare and arrange various measures to deal with our exit from the European Union. However, it may not have occurred to many, but this means much more for exporters and importers. There will now be no frictionless trade with the EU after the end of the transition period. To add to this, customs declarations and checks that currently only apply to trade with non-EU countries will become the norm for goods moving between the EU27 and the UK. A reality check might well be needed for those who have not considered this yet.
In recent speeches and interviews, senior UK Government ministers have confirmed that “The UK will be outside the single market and outside the customs union, so we will have to be ready for the customs procedures and regulatory checks that will inevitably follow.”
This sounds official enough, but what does that actually mean? Here are some clear takeaways:
Full import controls will apply to goods arriving in the UK after 31 December 2020
Transitional Simplified Procedures (TSP) will be withdrawn. Anyone authorised to use TSP will need to hold the appropriate authorisations.
The proposed special arrangements for exports and imports at roll-on roll-off (RoRo) ferry locations will not apply. Therefore, import declarations or transit movements must be presented on arrival to a Customs Office or via a Port Inventory System. For exports, goods will need to be presented on exit of the UK as happens for exports to non-EU countries.
EMCS (Excise Movement and Control System) movements will start at the port of import and not within 24 hours as was proposed.
The proposed VAT Postponed Accounting has also been shelved. VAT will be due on imports at the point of importation (cash on the table) subject to the use of deferment accounts and financial guarantees being in place.
The ‘Brexit Tariff’ with 88% of goods being imported free from customs duties, has been withdrawn. Instead, the Department for International Trade is consulting on the future tariff and potential removing nuisance tariffs (those under 2.5%) and rationalising others but at the same time protecting indigenous industries, promoting inward manufacturing while not undermining any negotiated free trade agreements.
How will this impact the construction sector?
The most notable thing that jumps out from the above is that imports of materials from EU suppliers to incorporate into construction projects will attract duty and VAT.
Duty is calculated on the value of the product and VAT is added to the duty inclusive price. The duty on a select number of products is set out below:
Bricks: 1.7%
Ceramics: 2%
Screws/Bolts: 3.7%
Plasterboard: 1.7%
Aluminium windows: 6%
Electrical cable copper: 5.2%
Cement: 1.7%
Plastic piping: 6.5%
Aluminium pipes: 7.5%
Electrical sockets/fuses: 2.3%
Electrical storage heaters, cookers: 2.7%
Copper pipes: 4.8%
For an immediate example, on an order of £100,000 of copper pipe, a typical construction company buying from a German supplier will incur duty of £4,800 plus import VAT of £20,960.
In this instance, only the VAT is recoverable. Today, there is no duty nor import VAT, therefore, businesses will need to absorb or pass on the duty cost and work around the negative VAT cashflow.
The import VAT is either paid at the time of import or deferred until the 15th day of the month following. It is then recovered on a subsequent VAT return which could be three months or more after it was paid.
To mitigate the above, businesses will need to:
Obtain an EORI number
Consider applying for a deferment account which will require a guarantee
Review terms of trade with EU27 customers/suppliers to determine who is the importer
Consider how declarations will be made and who will make these declarations. There will be a rush to secure valuable customs agent’s resource in Autumn 2020.
Review which HMRC regimes could mitigate exposure to the above, such as AEO, warehousing, etc.
It is also worth noting that the EU27 never promised any simplified procedures to importers or exporters so the UK is mirroring this. But businesses in the UK now have less time to get prepared! UK business needs to move quickly to ensure it can continue to operate supply chains as smoothly as possible.
There are set to be several months ahead of planning, but the thing to remember is that you are not alone and there is help at hand. Negotiating these new waters will be a headache the sector does not need, but is inevitable given the sea-change that all UK trade is having to adapt to post-Brexit.