13 Mar 2019

The UK government has published details of the temporary rates of customs duty it would impose on imports should a "no deal" Brexit occur.  Under the temporary regime, the government expects 87% of total imports to be tariff-free. In relation to the remaining 13%, temporary measures would involve:

  •  a mixture of tariffs and quotas on beef, lamb, pork, poultry and some dairy to support farmers and producers who have historically been protected through high EU tariffs

  • retaining a number of tariffs on finished vehicles in order to support the automotive sector. However, car makers relying on EU supply chains would not face additional tariffs on car parts imported from the EU to prevent disruption to supply chains

  • in sectors where tariffs help provide support for UK producers against unfair global trading practices, such as dumping and state subsidies, tariffs would be retained. Relevant products include certain ceramics, fertiliser and fuel.

The government would also maintain tariffs on goods including bananas, raw cane sugar, and certain kinds of fish, subject to preferential access arrangements for developing countries.

How much would you pay?

HMRC has estimated that up to 145,000 businesses, including many small and medium sized enterprises (SMEs) would be required to navigate customs procedures for the first time as a result of Brexit.  Where businesses have been importing only from, or exporting only to, the EU there will have been no need to consider tariffs or customs declarations due to the UK's membership of the customs union, single market and VAT territory. While a "no deal" Brexit remains the default legal position, many businesses face the possibility of having to comply with customs and border clearance procedures following expiry of the UK's Article 50 notice period at 11.00pm on 29 March.

Government guidance suggests that businesses should first use the online UK Trade Tariff Tool to identify the commodity code applicable to the goods they are importing. Commodity codes are ten-digit numbers for imports and eight-digit numbers for exports. For example, the import code for spark plugs is 8511100090, while the export code is 85111000. In each case, detailed notes establish the scope of the relevant code, in particular identifying items that are not within, or are only partly within the code. Consequently, identifying the applicable or most beneficial code can be a matter that requires help from an experienced customs advisor.

The UK Trade Tariff Tool also includes useful footnotes, for example, to indicate whether particular goods are subject to any prohibitions or restrictions, including trade sanctions. Given the extremely serious consequences that can flow from any breach of sanctions, this element of the tool is particularly useful.

Having identified the applicable commodity code, it then becomes necessary to run a separate check to establish the temporary tariff  rate that would apply following a "no deal" Brexit. The detailed list is available here.

That two-stage process reflects the fact that the government has yet to update the tariff rates within the UK Tariff Trade Tool.

Tariffs are not the only issue

Calculating the customs duties due on import is only part of the process. Businesses importing from the EU after Brexit would, for the first time, have to make customs declarations. HMRC's new online Customs Declarations System (CDS) is still being rolled out on a phased basis to replace the existing CHIEF system. Guidance on CDS is available here. For many SMEs, it is likely that access to CDS will become available some time after Brexit, requiring them to use CHIEF until it is wholly replaced.

Importers must also deal with import VAT. In a technical note published in August 2018 the government indicated that it would move to a "postponed accounting" basis for import VAT, rather than requiring payment at the point of import. A statutory instrument to effect that change was eventually laid before Parliament in January 2019, and should be effective by 29 March.

The legislation required to create a new, UK-only customs and import VAT regime was passed in September 2018 as the Taxation (Cross-Border Trade) Act 2018.

Also – and crucially – businesses seeking to trade with the EU post-Brexit must be registered under the Economic Operator Registration and Identification (EORI) scheme. Guidance and details of the registration process is available here.

What if the House of Commons votes to rule out a "no deal" Brexit?

On 13 March the House of Commons is due to vote on a motion to determine whether there is a majority that wishes to rule out a "no deal" Brexit.  Even if that motion were to pass, it would not in itself prevent a "no deal" exit.  Securing that result would require further legislation to amend or repeal the "exit day", currently defined by the EU (Withdrawal) Act 2018 as 11.00pm on 29 March. It would also be necessary to amend or repeal other existing legislative provisions. With just over two weeks to the deadline, there remains, for the moment at least, a risk that Brexit might occur on a "no deal" basis. 

Consequently, businesses faced with the possible need to deal with customs and other trade formalities, perhaps as soon as 30 March, should at the very least consider applying for an EORI number as a precaution. In addition, it is worth checking what tariff rates would apply to goods that are currently on order from EU suppliers, or new orders, with a lead-in time likely to extend beyond 29 March. Should tariffs apply, then the commercial question (determined by your contract terms) is how additional costs should be allocated. That question is now a pressing contractual concern for both suppliers and customers.