By Sue Leathem
JR Watson & Co
BY the time you are reading this, we might know what is happening about Brexit. Or we might not know? This period of uncertainty has been difficult for all businesses because of the unknown consequences on costs arising from tariffs and VAT.
At the time of writing, imports from the EU are free of tariffs and VAT. Businesses that are partially exempt from VAT do suffer an extra cost, but no more than they would pay if the supplier was based in the UK. Freedom of movement of goods has been a benefit of being in the Customs Union, and the Government’s intention is that we leave the Customs Union.
There are plans to cover the initial period after leaving the Customs Union. Tariffs, which is a tax applied to goods traded on international markets, will be applied equally to the remaining EU members and the rest of the world. 87 per cent of imports by value will be tariff free under these interim plans.
Imports of meat will attract tariffs, but eggs, cereals, fruit and vegetables will be tariff free. Particularly important to the car industry, the import of automotive parts will be tariff free. This is important because the nature of vehicle manufacture means that parts may move between countries several times. However, imports of new cars will attract a tariff of 10 per cent which inevitably will be paid by the final customer, business or private purchaser.
Businesses selling to European customers will need to see what tariffs will be applied to their exports on arrival into their customer’s country.
Tariffs are used to protect industry by making imports more expensive than home production. However, the World Trade Organisation does impose strict rules on clarity and fairness which avoids outrageous tariffs.
Imports from the EU are presently VAT free. If there is a no deal Brexit, VAT will be payable on imports, but the mechanism for accounting for this means that there will be neither a cashflow nor cost disadvantage.
Exports to EU by UK businesses will continue to be zero rated but the customer’s country could impose VAT on imports. So far as the UK is concerned, the EU countries will be treated in exactly the same way as the rest of the world.
Changing the UK law to cover both a no deal and deal Brexit will be an administratively enormous task. After decades of trading freely within Europe there are likely to be big changes for businesses to deal with.
Sue Leathem is a Partner in J R Watson & Co and can be contacted on 01604 630745 or by email to