Alcohol, tobacco and some oils are subject to excise duty and currently move freely between the UK and the rest of the EU with excise duty suspended, under EU law. These arrangements will immediately cease to apply if the UK leaves the EU without a deal. Businesses trading with the EU will need to comply with customs procedures, creating a significant administrative burden, especially for businesses with no previous experience of customs obligations.
The Taxation (Cross-border Trade) Act 2018 (TCTA) introduces a number of powers to regulate cross-border taxation, including the power to issue regulations to deal with a no-deal Brexit. The government has published regulations on how the UK's excise regime will operate should the UK leave the EU without a deal
The proposed legislation replicates the current rules for trade with non EU countries to ensure these also apply to EU trade. Further regulations create a new standalone customs regime in the event of no deal.
TCTA also allows for certain legal requirements to be set out in the form of public notices made by HMRC, for example, the form which electronic customs declarations should be made in.
The EU's Excise Movement and Control System (EMCS) would no longer apply to control duty suspended movements between the EU and UK. However, ECMS would still continue to control the movement of duty suspended goods within the UK.
The consequence of EMCS ceasing to apply is that immediately on importation to the UK, businesses moving excise goods from the EU, including those in duty suspension, will have make a customs declaration and the goods will have to be placed either in to a customs or excise suspensive arrangement or the duty must be paid at that point.
Existing policy relating to movements of goods to and from the rest of the world will remain unchanged.
Drawback is a reimbursement of UK excise duty when eligible excise goods have not been and will not be consumed in the UK. There are no major changes to existing regulations on the operation of duty drawback, and UK businesses can continue to claim drawback after exit day. As things stand, existing law will apply to any drawback transactions that are incomplete on exit day. Businesses should continue to monitor for any further HMRC announcements which may alter the position however.
Goods in respect of which excise duty is suspended must be held in an excise warehouse. HMRC has to approve the use of any premises as an excise warehouse and the operator of the warehouse needs to have been approved by HMRC as an authorised warehouse keeper.
The regulations remove certain privileges currently enjoyed by authorised warehouse keepers when sending relevant goods to EU member states. Currently, there are certain circumstances where accompanying documents are not required when EU goods are removed from warehouses. The regulations remove these circumstances.
The regulations amend existing rules relating to the warehousing of certain energy and alcohol products.
The government has also said that current procedures in relation to Authorised Economic Operators (AEOs) and temporary storage provisions for excise duty goods will not change in the event of no deal.
Excise goods that are in transit to or from the EU on exit day will fall under the existing rules.
What will the impact be to UK businesses?
Duty must either be paid immediately when goods enter the UK, or the goods must be placed in a duty suspensive arrangement. Businesses can set up a duty deferment account with HMRC to delay the payment of outstanding duty by an average of 30 days. However, there would be an ongoing cost for businesses in securing a guarantee in order to defer duty payment.
It is a positive step that the government has released more information about how customs and excise will operate in the event of no deal. However, the compliance burden on exporting businesses will be onerous. The government's impact assessment estimates that the total cost of completing customs declarations will be £6.5 billion per year for UK companies
Businesses will also incur one off costs as they familiarise themselves with how to complete declarations. These costs will be greatest for businesses with no prior experience of trading with non-EU countries.
The government says it intends to keep the legislation under review through conversations with the existing excise business consultative group. The regulations do provide some clarity on how the UK's excise and customs regimes will operate in the event of no deal. However, there are still a worrying number of uncertainties for UK businesses that trade with the EU.
What should businesses do?
- Businesses that trade with the EU should make every effort to understand the regulations that have been announced, and how they will be affected
- The government has sent letters to 144,000 businesses that trade with the EU only and has produced a 'partnership pack' encouraging businesses to consider the guidance and how a no deal scenario may affect their business
- Businesses should consider whether it would make sense to set up a duty deferment account with HMRC, taking into account the ongoing cost of guaranteeing this arrangement
- They should also consider whether their existing temporary storage arrangements are sufficient, and whether applying for AEO status would be cost-effective
Jake Landman is a tax expert at Pinsent Masons, the law firm behind Out-law.com.