Brexit Views 30 August 2018

Last week the UK Government published its first batch of technical notices outlining preparations businesses and consumers should take in preparation for a “no deal” outcome in Brexit negotiations. 25 of an expected 84 papers were published on Thursday with the rest expected to be released in batches throughout September. An overview of the UK Government’s preparations can be read here, while the full list of papers can be found here.

The release of the papers was promised at the publication of the Chequers Paper when the UK Government stated that it would be stepping up preparations for a “no deal” outcome. Recently the Prime Minister has resurrected her mantra that “no deal is better than a bad deal” and these papers hope to provide backing to this claim (although some firms in the sectors outlined might still disagree).

The publication also comes on the back of a call from the EU Commission for businesses to prepare for a “no deal” outcome that was issued in July.

The UK papers cover a number of areas including: importing and exporting; VAT; financial services; regulating medicines and medical equipment; farming; state aid; EU funded programmes; workplace rights; labelling; and civil nuclear and nuclear research.

Key points from these documents that may be of interest to our members are outlined below. There are undefined time periods allocated to some commitments with harder timelines for others. The main message from the UK Government is that if it diverges from EU regulations, it will do so in a manner that would provide businesses with the time to adapt.

The Chamber recommends all members whose UK operations would be impacted by a “no deal” outcome to read papers relating to their sector in full.

Importing and Exporting

  • The papers confirm that should there be “no deal”, Most Favoured Nation (MFN) tariffs and non-preferential rules of origin will apply to UK-EU trade. This means that customs declarations will be required for all UK-EU trade and that this trade will be subject to the same customs and excise rules (including safety and security declarations) that currently apply to trade with countries outside of the EU.
  • For goods going from the UK to the EU, customs duties will be paid at the EU’s MFN tariff rate as set in its Common Customs Tariff (CCT). Goods entering the UK from the EU will be subject to the UK’s MFN tariff rate although no indication is given on what these rates will be.
  • UK businesses that trade goods with the EU will need to register for a UK Economic Operator Registration and Identification (EORI) number in order to continue trading with the EU post-Brexit. They should also update their International Terms and Conditions of Service (INCOTERMS) to ensure these reflect any changes of status to importer/exporter.
  • Businesses may also need to either update their internal IT systems or engage external contractors to manage and process import/export declarations. Companies who wish to take on this task internally will need to secure authorisations from HMRC to do this.
  • Exporters may also need to apply for an export licence or provide additional documentation to export some specific types of goods.
  • The papers also advise on customs processes that businesses may wish to consider to help relieve the burden on increased costs. These include customs warehousing, inward processing, temporary admission and authorised use.
  • The UK has applied to re-join the Common Transit Convention (CTC) as an independent member. UK membership of the CTC will benefit Irish exporters who use the UK land-bridge as their route to continental markets.
  • The UK will establish its own Trade Remedies Authority (TRA) to deal with concerns around dumping/unfair trade practices/surge in imports in lieu of businesses directing such concerns to DG Trade.

VAT

  • There will be a number of changes to VAT processes in the event of a “no deal”.
  • Goods entering the UK from the EU will no longer be covered by Low Value Consignment Relief (LVCR). EU businesses sending parcels to the UK will need to register with a HMRC digital service to allow them to pay VAT directly online. For parcels valued at £135 or less, the seller will be required to make the VAT payment. For parcels over this amount, the UK recipient will be responsible for VAT payment.
  • UK businesses selling goods into the EU will be subject to the same EU VAT rules as any other third country currently is with VAT and customs duty due on arrival in the EU. UK businesses selling goods they have stored in an EU Member State to customers within that country will continue to be required to be VAT registered in that country.
  • For the sale of services, the main VAT ‘place of supply’ rules will remain the same although there may be some changes. The UK will stop being part of EU-wide VAT systems such as the VAT Mini One Stop Shop (MOSS) meaning businesses will no longer be able to pay VAT via a single return for sales of digital services to consumers in the EU. Businesses that wish to continue to use the MOSS system will need to register in an EU member state for the MOSS non-union scheme or alternatively they will have to register in each EU country where sales are made.
  • VAT refunds will still be claimable but will have to be done via a different process for non-EU businesses.

Financial Services

  • In the event of a “no deal” UK financial services firms will lose the ability to passport financial services into the EU. The ability of UK firms to sell financial services into the EU will be determined by the relevant member state rules and any applicable EU rules that apply to third countries.
  • For its part the UK Government will introduce a Temporary Permissions Regime (TPR) that will allow EU companies to continue operating in the UK and deliver financial services for up to 3 years after Brexit while they seek authorisation from UK regulators. Insurance contracts between EU providers and UK customers will also be protected by legislation in this scenario.
  • Without a deal, card payments made in euro will take longer to process and are likely to incur increased costs as they will no longer be protected by the surcharge ban for cross-border payments.
  • No certainty is provided on what will happen to cross-border contracts such as those covering derivatives and insurance payments into the EU that could become void in the event of “no deal”.
  • It is expected that EU based Fund Managers will continue to be able to delegate portfolio management to the UK after Brexit.

Other Areas

  • In medicines the UK will continue to recognise batch testing from EU and EEA countries for human medicines and Investigational Medicinal Products. It will further accept batch testing on human medicines from those countries with a Mutual Recognition Agreement (MRA) with the EU.
  • Medicines authorised by the EU before exit day will continue to be authorised by the UK. New medicines after this date will have to seek authorisation separately from the Medicines and Healthcare products Regulatory Agency (MHRA). The UK will continue to recognise the EU’s CE mark for medical devices.
  • The UK will seek to maintain alignment with EU regulations for clinical trials.
  • The UK will transpose EU State AID Rules into domestic legislation and will establish a domestic framework that maintains these rules.
  • UK exporters of organic foods will need to apply for certification by an EU recognised control body. In order to accommodate this, UK bodies will need to apply to the EU Commission for recognition – a process that can take up to nine weeks and can only start once the UK becomes a third country. The UK “envisages” it will continue to accept EU authorised organic food although the paper points out that it will be at the UK’s discretion.
  • The UK will guarantee funding granted by the Commission under the 2014-2020 Multiannual Financial Framework including structural and investment funds, Horizon 2020 and Erasmus +. This guarantee will cover the payment of awards granted by the Commission to applications submitted ahead of Brexit for the full duration of the projects.
  • CAP Payments are guaranteed until 2022 and will be granted on the basis of standards being maintained at the current level.

In areas of specific concern for trade on the island of Ireland, little guidance is provided on additional measures that may be introduced to accommodate this trade. Businesses in the North that trade across the border are advised that they may also need to seek advice from the Irish Government on preparations.

While it is prudent for businesses to put plans in place that would allow operations to continue in the event of a “no deal” outcome, negotiators must continue to strive for a negotiated Withdrawal Agreement. Regardless of any preparations that will be put in place, UK-EU trade will be severely impacted if there is “no deal” and businesses and consumers will have to burden increased costs and disruption as a result.

The British Irish Chamber of Commerce was in Brussels this week for a series of meetings and it was made clear to us that a “Backstop” agreement for the border on the island of Ireland continues to be the main obstacle facing negotiators. The Chamber would echo calls from Michel Barnier for both sides to depoliticise this issue and find a compromise that will deliver on the promises made last December and ensure we don’t all walk off a cliff together next March.