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This publication is available at https://www.gov.uk/government/publications/hmrc-impact-assessment-for-the-movement-of-goods-if-the-uk-leaves-the-eu-without-a-deal/hmrc-impact-assessment-for-the-movement-of-goods-if-the-uk-leaves-the-eu-without-a-deal
HMRC impact assessment for the movement of goods if the UK leaves the EU without a deal
Section A: Background
Leaving the EU without a negotiated settlement is not the government’s preferred outcome, but it is essential that the UK is prepared for all possible eventualities on customs, VAT and excise arrangements. While the government does not want or expect a no deal scenario, it is prudent for both government and businesses to make contingency plans for a scenario in which the UK leaves the EU without a negotiated arrangement.
As part of the no deal preparations, HMRC has published technical notices on customs, excise and VAT, and issued letters to 144,000 businesses trading with the EU only), encouraging them to view existing guidance explaining no deal arrangements. The government has also published a partnership pack, setting out a high level guide that includes customs processes and procedures that are likely to apply in a ‘no deal’ scenario. To further support this, the government is also developing the legal framework needed to underpin these processes and procedures, in order to deliver on its commitment to provide stability for citizens, consumers and businesses.
This note covers the impact on businesses of introducing new customs legislation and amendments to existing VAT and excise legislation for the trade in goods between the UK and the EU. It includes five sections that cover:
- Section A: Background
- Section B: Summary of impacts (plus annex)
- Section C: Detailed impacts - the cost of submitting import declarations, paying import duty and mitigating facilitations
- Section D: Regulations with negligible cost or no impact
- Section E: Other impacts
The regulations being introduced
The Taxation (Cross-border Trade) Act 2018 (TCTA 2018), which received Royal Assent on 13 September 2018, introduces a number of powers, including the powers to:
- impose and regulate import duty on goods imported into the UK
- make provisions in relation to import duty, VAT or excise in consequence of or connected with the UK’s withdrawal from the EU
These powers are flexible enough to accommodate a range of negotiated outcomes including a ‘no deal’ scenario.
Under the TCTA 2018 and the EU Withdrawal Act 2018 the government is introducing regulations from the end of November through to February 2019 that will set out the legal framework for a new customs arrangement in the event of a ‘no deal’ scenario. The regulations are intended to be laid in two main tranches; one at the end of November and the other at the end of January. As the impact of the regulations will cut across customs, VAT and excise, this note explains how businesses moving goods across the new UK-EU border will be impacted by all three tax regimes.
This note sets out the impact assessment for the November regulations, which can be found here.
The November regulations will include provisions for:
- customs import processes and procedures, including the submission of customs import declarations and applying to be an authorised economic operator
- lodging declarations before goods arrive at specified ports
- applying to use a range of facilitations (special procedures)
- paying, or deferring payment of, import duty
- transit of goods to, through and from the UK
- collecting trade statistics
- a penalty regime for non-compliance
The intention is to publish additional impacts when further regulations are laid. These regulations will include provision for:
- VAT rules for low value parcels coming into the UK
- the UK’s Tariff
- registering for an EORI number
- submitting safety and security declarations
- a framework for the export of goods to the EU
- the tax treatment of goods brought into the UK by travellers
- the customs, VAT and excise arrangements at the Northern Ireland land border which will recognise the unique economic, social and cultural circumstances of the land border and will seek to avoid a ‘hard border’ for tax purposes
Before 29 March 2019
Goods currently move freely between EU member states as part of a customs union established under EU legislation (the Union Customs Code). This means UK businesses trading with the rest of the EU are not subject to routine customs controls and import duty is not payable. Therefore, businesses do not have to submit any customs import or export declarations. However, for VAT purposes, businesses have to declare acquisition VAT on their purchases from the EU, which is accounted for through their VAT Return.
Certain goods are subject to Excise Duty. This is charged on the importation and manufacture of alcohol, tobacco and oils. These goods are currently free to move between the UK and the rest of the EU with Excise Duty suspended, subject to certain conditions being met.
What happens in a ‘no deal’ scenario?
In the unlikely event that the UK leaves the EU on 29 March 2019 without a deal, the customs, VAT and excise arrangements in place as a result of the UK being part of the EU will no longer apply. The UK would no longer be subject to the Union Customs Code and new legislation will be needed to replicate the current rules for trade with non-EU countries, ensuring that this also applies to EU trade.
The government has published details on GOV.UK explaining what would happen to customs, VAT and excise procedures on 29 March 2019 in the event of a ‘no deal’ scenario. See the pages on Trading with the EU if there’s no Brexit deal, VAT for businesses if there’s no Brexit deal, and the Partnership pack: preparing for changes at the border after a ‘no deal’ EU exit.
The legislation being introduced for customs, VAT and excise will continue to apply highly automated customs controls with a range of simplifications and limited risk and intelligence-based checks, when the UK leaves the EU. As it does now, HMRC will continue to work closely with industry to ensure that its interventions are conducted in a way which minimises delays and additional burdens for legitimate trade. The intention is to follow the processes in place for trade with non-EU countries as far as possible to minimise disruption and prioritise stability at the point the UK leaves the EU. In most cases, the same rules will apply to goods moving between the UK and the EU that are currently applied to goods imported and exported from outside the EU. For VAT purposes, there will be some specific changes to the procedures that apply to transactions between the UK and EU member states.
Section B: Summary of impacts
The government does not want or expect a no deal scenario, but if the UK had to leave the EU without a deal, HMRC would commence these regulations so that they came into effect on exit. Businesses currently trading within the EU would be faced with complying with customs procedures, resulting in significant ongoing administrative burdens in having to submit a customs import declaration and pay import duty before goods are entered into free circulation (when all import formalities have been completed and duties paid). This note explains these costs in more detail but also sets out how they can be reduced by various facilitations that businesses could choose to adopt, in order to simplify the declaration process and or defer the payment of tax. These impacts are considered for each of the regulations laid in November.
The summary of impacts introduced by each regulation is set out in Annex A.
Rationale and evidence of analysis
Where data is available, HMRC has calculated the administrative burdens using the Standard Cost Model (SCM) as the basis for impacting the on-going burdens the regulations will place on businesses. This is an established model that uses an internationally recognised framework, based on data collected externally from businesses and a methodology which produces consistently calculated estimates. This information is then combined with other data that is available to HMRC and used to calculate the administrative burdens on business of submitting customs import declarations.
Where data is limited HMRC has used internal customer insight and information obtained from engaging with stakeholders to develop its assumptions.
The document includes costs of submitting a customs import declaration which is a core obligation for the movement of goods between the UK and the EU under a no deal scenario. All other areas have been explored qualitatively on the basis that they are either optional facilitations or because there is insufficient evidence available to produce accurate costings.
Why publish an overarching impact note?
The legislation being made is substantial and will be introduced through a sizeable number of statutory instruments over a number of months. Therefore, HMRC has decided to present the impact of the legislation laid in November as a whole, so that the wider impacts on businesses can be better understood.
However, while providing an assessment of several parts of the customs regime together, it is important to remember that not all parts will apply to all businesses, because of the activities they undertake and the way they choose to engage with customs procedures.
This impact assessment will provide an explanation of the impacts as they can be best understood at this time.
Section C: Detailed impacts - the cost of submitting customs import declarations, paying import duty and mitigating facilitations
Following on from the TCTA 2018, The Customs (Import Duty) (EU Exit) Regulations 2018 introduces further detail on a customs regime for the importation of goods coming into the UK from anywhere in the world. It sets out when and how goods are presented to customs, the clearance process and the point at which businesses will need to submit a customs import declaration. It covers when duty becomes payable and how this can be deferred. It also covers the authorisation process and how to apply for facilitations such as the accreditation of an authorised economic operator.
While these obligations already exist for imports from outside of the EU, they will be a significant new, ongoing administrative burden for businesses importing goods from the EU.
However, this and other regulations also implement a series of optional facilitations such as the authorised economic operator accreditation, special customs procedures, temporary storage and transit arrangements which will allow businesses to interact with the customs regime in ways that are either simpler, or more cost effective, in meeting the needs of their business models. While some of these will impose a one off cost to apply for or implement and/or ongoing costs (for example, maintaining a customs warehouse or submitting a transit declaration), the long term benefits are expected to outweigh these costs and can help to reduce the ongoing burden of complying with the requirement to submit customs declarations and/or payment of import duty.
Maximising business access to facilitations, where appropriate, is a core objective of HMRC and it will continue to look at ways of reducing the administrative burdens that a customs regime brings, for example by providing further guidance on how to prepare for and comply with requirements in a no deal scenario, and providing support for the customs intermediary sector to help foster more customs agents who can help businesses meet these new obligations.
The high level impact of each statutory instrument is considered below.
1. The Customs (Import Duty) (EU Exit) Regulations 2018
a) The costs of submitting customs import declarations
Movement of goods by freight: The obligation to submit a customs declaration is covered in the TCTA 2018 but the statutory instrument gives further detail about the declaration process. A customs declaration is used to declare the nature, amount and value of goods being brought into the country. This is used to apply quota limits and charge import duty and import VAT. The information in the declaration is used to calculate the duty payable. If the UK leaves the EU without a deal, businesses will be required to make declarations for goods imported from the EU. Imports from the EU to the UK will be treated in the same way as imports from non-EU countries. At the moment, goods being imported into the UK from the EU do not need to be accompanied by a customs declaration. A static estimate of the increase in the total number of customs declarations (for both import and export) is 205 million of which a sizable proportion of that will relate to import declarations. This volume is based on analysis of EU Intrastat declarations and VAT data, as well as non EU trade data. This analysis indicates a higher number of consignments for a similar value of trade than HMRC sees in trade with the rest of the world. This is in line with the fact that HMRC would expect consignments from the geographical region closest to the UK to be generally smaller in value than those from the rest of the world, and more frequent.
As businesses interact with customs in different ways, the costs they incur are different and so costs can vary between £15 and £55 per declaration. HMRC has used a segmentation approach to look at the new declarations and costs for five different groups of businesses, differentiated by their trade volumes and use of intermediaries. A static estimate for the administrative burden on UK businesses from additional import and export declarations is £6.5 billion with import declarations accounting for around half of this figure. The £6.5 billion estimates the admin burden of completing customs declarations for all EU trade in goods movements, made by all businesses. This includes businesses who currently only trade with the EU and those who currently trade with both the EU and non-EU countries.
Additional administrative costs will also apply to businesses on the EU side of the border because an export declaration from the UK will need to have a corresponding import declaration into the EU and vice versa. Analysis of the trade statistics evidence base, used by the World Bank in compiling their “Doing Business Report” (2017), suggests costs of completing customs declarations are broadly similar in the EU and the UK. HMRC therefore estimates that the total ongoing administrative burden on UK-EU trade is c£13 billion a year. The costs on both sides of the border are required to understand the impact on UK-EU trade, as costs imposed on UK or EU businesses will have wider implications for supply chains, and therefore for consumers and businesses in either market.
There will be one off costs to businesses that currently trade only with the EU who will need to familiarise themselves with how to complete customs declarations for the first time. Further training costs will be incurred as they upskill themselves and their workforce in the declaration process. However, it is estimated that the majority of UK businesses who currently trade with non-EU countries, and therefore have to comply with customs obligations, use the services of an intermediary or agent (that is, customs broker, freight forwarder, logistics provider) to complete the declaration on their behalf and fulfil their customs obligations. It is therefore anticipated that the majority of UK businesses currently trading exclusively with the EU – estimated to be in the region of 245,000 (of which 144,000 businesses are above the VAT threshold) – will follow this model and also use intermediaries and agents in order to comply with these new obligations. There may be costs to businesses associated with finding and familiarising themselves with intermediaries’ services, however, the cost of intermediaries completing customs declarations on a business’s behalf is included in the estimates above.
HMRC will continue to look at ways of reducing the administrative burden of submitting import declarations and simplifying the way businesses interact with the declaration system. This will include support to businesses to meet the new obligations on them immediately upon EU exit.
Movement of parcels into the UK: HMRC estimates that a proportion of the £6.5 billion administrative burden will be incurred by those making use of Fast Parcel Operators (FPOs) to submit customs declarations for UK-EU parcels. We have assumed that the cost of submitting these declarations will be lower than for other customs declarations. These new customs declarations will mirror the current rules used for parcels imported into the UK from outside the EU.
b) The ongoing costs associated with paying import duty and import VAT
Payment of import duty must happen before goods are released from customs control and the amount of duty payable is determined by the value of goods multiplied by the duty rate in the Tariff. The government will be setting the Tariff for a no deal scenario in early 2019 and this will be accompanied by a separate assessment of impacts.
In the event of a no deal scenario, businesses will be required to pay import duty and import VAT on imports from the EU for the first time (import VAT will replace the current acquisitions VAT). This will be a significant ongoing cost to businesses.
The government has announced that it will introduce postponed accounting for all import VAT (imports from both EU and non-EU countries) so that VAT registered businesses can account for import VAT on their periodic VAT returns. This will give importing businesses a significant cash flow advantage. More detail about this change will be included in a future impact assessment.
Businesses will be able to pay their customs import duty in a number of ways. However, businesses can also delay payment of import duty by an average of 30 days by setting up a duty deferment account. HMRC will require the duty to be secured by a bank, insurance company or building society.
It is estimated that a group of at least 144,000 VAT registered businesses who currently only trade with the EU, and so are likely to be new to customs procedures, will be impacted in addition to an estimated 100,000 non-VAT registered businesses who also trade with the EU. The costs (some of which will be one off and others on going) are likely to include the following:
- cost of appointing a customs agent if electing to do so
- familiarisation with a new UK tariff
- setting up a payment method
- additional record keeping requirements – customers will need to keep records for at least 6 years and this may require new systems and processes
- one off cost for arranging for a deferral account
- costs of securing a guarantee to take advantage of deferring/suspending the payment of import duty
Businesses that have only moved goods to and or from the EU will require a guarantee in order to defer or suspend payment of duty. While there will be an ongoing cost in securing a guarantee (from a relevant institution or an intermediary for use of their guarantee facility), businesses will only make that business decision if there are commercial benefits gained in deferring or suspending the payment of import duty which, in this case, would be a significant cash flow benefit. The incentives for businesses will be determined by a number of factors which will vary by sector, business model and type of trade.
For those excise businesses who do not currently import excise goods from the rest of world, they may need to make arrangements to gain access to a deferment account. This may increase their costs in importing excise goods
c) The facilitation of applying to be an Authorised Economic Operator (AEO)
AEO status is an internationally recognised quality mark indicating that an operator’s role in the international supply chain is secure, and that their customs controls and procedures are efficient and compliant. This is a facilitation that offers a range of benefits including quicker access to certain simplified customs processes, reduced requirements for guarantees, and in some cases the right to ‘fast-track’ shipments through some customs and safety and security procedures. Businesses can apply to be authorised for ‘customs simplification’ - AEO(C), ‘security and safety’ - AEO(S), or both. The Customs (Import Duty) (EU Exit) Regulations 2018 only cover AEO(C). The rules around AEO(S) will be dealt with in subsequent regulations in early 2019.
The benefits of an AEO(C) accreditation are:
- simplified customs processes: easier admittance to customs simplifications, fewer physical controls, possibility to request the location that HMRC applies customs controls
- a 70% reduction in a business’ deferment account guarantee
- a notification waiver when making an Entry in a Declarant’s Records, which simplifies the process
- moving goods between temporary storage facilities
The UK scheme will already be up and running and existing AEOs registered in the UK will automatically be carried over and will not be required to re-apply.
Based on European Commission figures from 11 November 2018, there are 271 AEO(C) accreditations in the UK and most of them are from transportation and storage, manufacturing, wholesale and retail sectors. 1
It is difficult to predict, at this time, how many new businesses that only deal with UK/EU trade will seek to apply for this status but HMRC thinks it is likely to be businesses from the same sectors. It anticipates that businesses would only apply if the costs of complying with the criteria are outweighed by the benefits of the scheme which, in a no deal scenario, it assumes would be unilateral. The cost of applying for AEO status for small and medium enterprises may be modest relative to the benefits received, but HMRC still predicts significant numbers of these enterprises choosing to incur these costs. It anticipates that the cost of applying for AEO(C) status across all business sectors will lead to a significant one off cost.
The costs are likely to include the following:
- hiring external agents to help with the AEO application process
- purchasing of additional software to ensure the record keeping is maintained to certain standards
- initial familiarisation with procedures and complying with requirements
An AEO application is ultimately a commercial decision which businesses will take if they believe the long term benefits will outweigh the cost of applying, and offset the overall cost of interacting with the customs system for example, by making it quicker and easier to access other facilitations.
d) Temporary storage
Temporary storage is a facilitation that defers the declaration process and payment of import duty and VAT for up to 90 days on the goods arriving into the UK. When goods are imported into the UK they must be presented to HMRC to verify if they are domestic or chargeable goods. If determined to be domestic then no further action is required. If deemed to be chargeable then either an import or a temporary storage declaration must be made. When goods are placed into a temporary storage facility they are under HMRC control and they have up to 90 days to pay any duties liable before the goods must be moved out of temporary storage. These facilities are not routinely operated by HMRC but by businesses holding an approval to operate them.
The existing arrangements will remain the same following exit from the EU, but there is expected to be an increase in the volume of goods that will be placed into a storage facility, as goods imported from the EU will be subject to customs control.
While there will be a cost if businesses choose to use a temporary storage facility HMRC does not predict that this will be a significant cost. Businesses will only make that business decision if there are commercial benefits gained in deferring the submission of a customs declaration and the payment of import duty by up to 90 days which, in this case, would be a significant cash flow benefit.
2. The Customs (Special Procedures and Outward Processing) (EU Exit) Regulations 2018
These are key facilitations as they allow businesses to reduce or suspend the payment of import duty, import VAT and excise duty on goods used in their businesses, for example in processing or during repair. This provides significant cash flow benefits for businesses. In some cases, for example, where goods are re-exported following processing, the duties are actually discharged and will not be payable at all. These special procedures are currently only available and necessary for businesses dealing with goods coming in from outside the EU.
These regulations ensure that in the case of no deal, businesses currently authorised in the UK to use special procedures will continue to be able to import goods into the UK to process, repair or store them whilst duties are suspended, providing temporary and in some cases permanent cash flow benefits. As EU goods will be treated in the same way as goods imported from the rest of the world, there is likely to be an increase in the number of traders applying to use special procedures for goods imported from the EU, in order to suspend duties and reduce to some extent the significant impact on existing business models and supply chains of imposing customs controls. The special procedures and their benefits are:
- customs warehousing – this allows traders to hold goods in an approved warehouse (either operated by them or another business) with import duty, excise and VAT payments suspended until the goods are moved into free circulation; if goods are re-exported from the warehouse then duty is discharged altogether
- inward processing - allows businesses to import goods for processing or repair with import duty and import VAT suspended, the duty becomes payable when those goods are declared to the free circulation procedure; no liability for import duty or import VAT will arise if the goods are re-exported or entered into another special procedure - these regulations will enable UK traders to use inward processing for goods imported from the EU and from the rest of the world
- outward processing - this currently applies to UK goods sent outside the EU for an approved process and then re-imported; import duty, excise duty and import VAT are calculated on the value of the process completed rather than the total value of the goods - these regulations will enable UK traders to re-import processed goods from the EU as well as the rest of the world and pay duty only on the value added by that process
- authorised use (end use) - this enables goods to be imported for a prescribed use (for example, chemicals used in inhalers) at a reduced or nil rate of duty - these regulations will ensure that UK imports from the EU can also be imported at a reduced or nil rate if used for a prescribed purpose
- temporary admission - this allows goods to be temporarily imported into the UK such as samples, professional equipment or items for auction, exhibition or demonstration - as long as these goods are not altered while they are within the UK, no import duty or VAT will be payable
HMRC anticipates an increase in the number of businesses seeking authorisations to use special procedures in the UK as EU goods will be treated in the same way as rest of world goods. If a business importing goods from the EU to the UK wishes to suspend duties whilst processing, repairing or storing them, then they will need to apply for authorisation to use a special procedure.
Customs warehousing, inward processing and end use are the most popular special procedures for UK traders currently dealing with non-EU goods, especially for wholesale trades and large retailers. Inward processing is also popular with manufacturers of machinery and equipment. Based on this HMRC anticipates increased applications from businesses in these sectors that are currently trading with the EU, particularly for these special procedures. However, it is difficult to estimate the possible increase in businesses that will want to use special procedures as businesses will have to weigh up the benefits of becoming authorised (as set out above) against the cost.
The costs are likely to include the following:
- familiarisation with the processes they are required to comply with
- for customs warehousing: acquiring or renting a building, maintaining and staffing it
- acquiring a guarantee
- upscaling of IT systems to allow submission of customs declarations
- the use of an intermediary where businesses elect to hire them to meet their customs requirements
HMRC thinks these one off costs and the ongoing costs, for example costs of maintaining customs warehouses will be significant but businesses will only incur these costs if the long term benefits of deferring or even suspending import duty and import VAT will help to reduce the overall administrative burden of paying import duty and import VAT.
3. The Customs Transit Procedures (EU Exit) Regulations 2018
The transit procedures are facilitations that can help businesses move goods across a number of customs territories without the need to submit a full customs import declaration or pay import duty until the point of destination so provides a significant cash flow benefit, and eases the administrative burden when moving goods across multiple customs territories. It also covers the procedures for the movement of imported goods within the UK. The transit procedures are:
Common Transit Convention
The Common Transit Convention (CTC) is a customs procedure that suspends import duty, import VAT and excise duty on goods travelling through eligible countries (Contracting Parties) until they have arrived at the customs office of destination, where they are subject to the destination country’s import procedures. Common transit arrangements currently cover movements of goods by road, rail or sea between the EU and countries that are contracting parties to the CTC. Once the UK leaves the EU, it will become a separate customs territory but the UK is seeking to accede to the CTC in its own right. Membership of the CTC will help ensure the government maintains frictionless trade that enables businesses to move goods across the border or territories under guarantee without having to pay import duty, import VAT and excise duty until entering the final customs territory. Benefits of the CTC include:
- a streamlined and automated customs arrangement to facilitate the free flow of goods
- the suspension of the requirement for customs declarations and payments of import duty, import VAT and excise duty until the goods reach their destination, minimising administrative costs and reducing delays
To benefit from the common transit arrangements, declarations under the common transit system must be made electronically at the office of departure, using the New Computerised Transit System (NCTS) which is used by all common transit countries. In exceptional circumstances, such as an IT systems failure, a paper copy of the declaration may be submitted. The declaration must be entered on the NCTS before any goods are authorised for movement. Once approved, the businesses will be able to download a Transit Accompanying Document (TAD). This must be presented along with the goods, when entering a new customs territory, at an office of transit and finally at the office of destination.
The costs are likely to include the following:
- familiarisation of the CTC process and requirements
- acquiring new or upscaling existing IT systems to enable submission of customs declarations
- agent costs where businesses elect to use them to meet transit requirements
- authorisation of new consignee or consignors 2
- submitting and presenting the transit declaration
- increase in number of records to be retained (paper TADs have to be retained for 6 years).
- the cost of securing a guarantee against the transit liabilities
International Road Transport (TIR) Convention
This is an international agreement, comprising 73 member countries, allowing for international carriage of goods under duty suspension. As with other customs transit procedures, the TIR procedure enables goods to move under customs control, under financial guarantee, across international borders without the payment of the duties and taxes until the goods reach their final destination. A condition of the TIR procedure is that the movement of the goods must include transport by road through some portion of the journey.
This is a system already used by UK importers and exporters who trade with countries outside the EU. If the UK successfully accedes to the CTC by March 2019, then it does not expect there to be a significant increase in TIR transit movements.
The costs are likely to include the following:
- familiarisation of the new process for UK businesses who currently trade with the EU only
- additional administrative procedures for businesses to secure guarantees
- agent costs where businesses elect to use them to meet transit requirements
It allows the movement of chargeable goods not in free circulation between two locations in the UK to be suspended from import duty while the goods are under the procedure. This may include, for example, movement of chargeable goods between different temporary storage facilities, or movement to and from a customs warehouse. The type of costs of moving goods under domestic transit will be similar to the ones set out in CTC and will only be incurred if the ongoing costs are outweighed by the long term benefits.
The transit procedures are another facilitation that UK businesses will choose to adopt if the one off and ongoing costs of applying to use and administer the schemes are offset by the cash flow benefits. It is difficult for HMRC to ascertain the number of businesses that will apply to use these facilitations but it predicts the numbers will result in significant one off and ongoing costs which will be outweighed by the long term benefits gained by deferring the point of submitting a customs declaration and payment of import duty and import VAT which in turn will help reduce the overall administrative burden of submitting import declarations payment of import duty and VAT.
4. Value Added Tax (Disclosure of VAT Registration Information) (EU Exit) Regulations 2018
Currently, the ‘EU VAT Registration Number’ Service allows businesses to check whether an EU customer or supplier’s VAT number is valid. In a no deal scenario, UK VAT registration numbers will no longer be part of this service. The regulations give HMRC the power to continue to disclose information relating to UK VAT numbers and develop an online system so UK VAT numbers can continue to be validated.
While there could be a small cost to UK and EU businesses which have to use a separate UK system to check UK VAT registration numbers rather than being able to do the check using the EU service, the overall impact of this optional facilitation will be positive as it helps businesses carry out their due diligence checks and meet their tax obligations.
Section D: Regulations with negligible cost or no impact
5. The Statistics of Trade (Amendment etc.) (EU Exit) Regulations 2018
The government is committed to making robust, evidence based economic trade decisions by collecting accurate and timely trade statistics. As part of the existing arrangements, the value of the movement of goods between EU member states is currently captured from VAT returns, with greater detail collected by the Intrastat system. This is the information collected through a monthly statistics Supplementary Declaration from which statistics are produced on the intra-EU movement of goods. Not all businesses trading goods with other EU member states are required to complete a Supplementary Declaration, only those who exceed the current annual Intrastat exemption thresholds of £1.5m in goods trade for EU imports and/or £250,000 for EU exports. The data declared on the VAT return is used to inform which businesses should make Supplementary Declarations. Under the new rules, businesses who exceed this threshold will no longer be required to submit a Supplementary Declaration as the trade statistics information will now be sourced from the customs declaration. However, the statutory instrument retains the ability for HMRC to request the completion of a Supplementary Declaration in the event that a customs declaration is no longer required.
Extrastat is the term referred to data on trade in goods with non-EU countries and collected by customs authorities through customs declarations. Under a no deal scenario, the Extrastat data collection will remain unchanged. However, the number of businesses expected to make customs declarations will rise to include those trading within the EU. Therefore the data which is currently collected through Intrastat returns will be sourced from these customs declarations rather than through a separate Intrastat process and so the current costs of submitting these will cease. There will be some familiarisation costs in completing a customs declaration but this is covered in section C.
Hence, HMRC does not anticipate any additional costs being incurred by businesses as result of this regulation.
6. The Customs (Contravention of a Relevant Rule) (Amendment) (EU Exit) Regulations 2018
Existing domestic legislation governs the current customs civil penalty regime which is linked to the Union Customs Code (UCC). When the UK leaves the EU, an effective civil penalties regime for the UK customs regime will be required. This regulation replicates and amends existing customs civil penalty provisions. It will remove existing references to EU legislation, replacing them with the relevant sections of the Taxation (Cross-border) Trade Act 2018. It will set out the relevant rule, description of person liable, and the maximum financial penalty (which will be a limit of £2,500). Examples of where a civil penalty may be appropriate are where there is a failure to make a temporary storage declaration as specified, or a failure by an authorised declarant to make available the documents required, or when goods are removed from a Customs warehouse without authorisation.
Any possible increase in the number of civil penalties applied as a result of these amendments is difficult to quantify given that these penalties are applied on a case by case basis, allowing for any ‘reasonable excuse’ which customers might have in not being able to fulfil their obligations. HMRC notes that businesses will need to familiarise themselves with a new penalty regime which will be a small cost. However, only non-compliant businesses will incur a cost of a penalty - this does not contribute towards the quantification of administrative burdens.
HMRC is considering whether a graduated approach to penalties could be applied to support transition.
7. The Crown Dependencies Customs Union (Isle of Man) (Jersey) & (Guernsey) (EU Exit) Orders 2018
These instruments will give effect to customs arrangements between the UK and the Crown Dependencies (CDs) which will maintain our current customs relationships when the UK leaves the EU. Three separate Orders will give effect to three arrangements: one new arrangement between the UK and Jersey, one new arrangement between the UK and Guernsey and one updated arrangement between the UK and the Isle of Man (IoM). Together these arrangements will form a UK-CDs customs union under the TCTA 2018. The Orders do not themselves establish a UK-CD customs union, but rather each Order allows the UK’s customs regime to reflect such an arrangement by providing the means necessary in domestic legislation to implement it.
Isle of Man
The IoM is in a shared VAT and excise territory with the UK, meaning that no import VAT or excise duty is payable in respect of movements of goods between the UK and the IoM. The Order relating to the arrangement with the IoM reflects the wording of the Isle of Man Act 1979. Under this Order, goods imported into the UK from the Isle of Man will continue to be treated as domestic goods under the TCTA 2018 and not to have been imported. Therefore, there will be no new direct costs to businesses either in the UK or on the IoM and no additional information requirements as a result of this Order.
Channel Islands (CIs)
By contrast, while goods imported into the UK from the Jersey and Guernsey are not subject to import duty, they are subject to import VAT and excise duties. As a result, customs declarations are still required to be made in respect of goods coming in to the UK from the CIs, as the making of a customs declaration is the trigger point for charging import VAT and Excise Duty. The Guernsey Order and Jersey Order do not give effect to changes to existing processes, therefore there will be no new direct costs to businesses either in the UK or in the CIs and no additional information requirements as a result of these Orders.
8. The Wharves and Temporary Storage Facilities (Approval Condition and Transitional Provision) (EU Exit) Regulations 2018
HMRC has taken on new legal powers to impose additional conditions on ports before they are approved for customs purposes. These are discretionary powers which will not be used unless HMRC decides to place a new obligation on ports. Therefore, this legislation has no direct impact on businesses. Any new obligations will be set out in a future policy announcement. HMRC will update its estimate of impacts when the next set of regulations are laid.
9. Port Approvals: The Wharves, Airport Examination Stations and Temporary Storage Facilities (Approval Conditions)(EU Exit) Regulations 2018
This measure does not introduce new requirements; it formalises some of the existing practices following an application to HMRC for the approval of wharves and airport examination stations etc. Businesses seeking approval to operate a point of entry for goods will be required to supply facilities and amenities to the customs authorities free of charge. HMRC and its authorised agencies have always required the provision of appropriate amenities and facilities to carry out their duties, at the expense of the applicant. Businesses such as ports, airports and temporary storage providers will benefit from having greater certainty about the approval process. HMRC does not foresee any additional costs being incurred by these businesses as this regulation puts the current application process onto a legal footing giving them a statutory right to appeal if the approval is refused.
10. The Customs (Temporary Storage Facilities Approval Conditions and Miscellaneous Amendments) (EU Exit) Regulations 2018
This formalises the existing approval process for businesses seeking to operate temporary storage facilities. Ensuring, for example, that they are sufficiently secure and that goods can be readily identified. It also sets out the mechanisms for the presentation of goods between various modes of transport (road, rail and air and so on), ensuring they are consistent with current requirements. These obligations do not introduce any additional costs to businesses.
Section E: Other impacts
In the event of a no deal scenario, final costing would be produced and would be subject to scrutiny by the Office for Budget Responsibility and would be set out at a later date.
This impact assessment covers HMRC’s best assessment of the direct costs and administrative burdens to businesses from changes to the movement of goods in a no deal scenario. It is not an assessment of the macroeconomic impact of these changes. The government has fulfilled its commitment to provide economic analysis of different EU exit scenarios to parliament and published its Long-term Economic Analysis (Command Paper) on the 28 November 2018.The published analysis is not a forecast of the UK economy but sets out the economic impact of changes to the UK’s trading relationships under different EU exit scenarios against current arrangements. The analysis includes a no deal scenario which captures the full economic effect of this outcome, including implicitly, the costs and frictions from changes to the customs arrangements. The Government’s analysis looks at long-term economic impacts and does not capture short-term operational or wider economic effects.
Equality impacts have been considered across all of these changes and HMRC does not anticipate that there will be impacts on groups sharing protected characteristics. The only possible policy area that could give risk to accessibility is the electronic submission of a customs import declaration but HMRC will be providing for non-digital alternative channels. HMRC also believes there will be positive benefits from this measure, as the ability to enable digital declarations will reduce queues, so anyone needing assisted digital support will benefit from reduced waiting times. By the very nature of the activity, HMRC thinks most businesses engaging with this measure will all have access to the internet.
The Right Honourable Mel Stride MP, Financial Secretary to the Treasury, has read this impact assessment and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.
Annex A: Summary of impacts
|1. The Customs (Import Duty) (EU Exit) Regulations 2018||Confers an obligation - significant cost: The impact of leaving the EU introduces the obligation to submit import declarations and the payment of import duty. These are significant ongoing administrative costs impacting UK and EU businesses of all sectors.
These costs can be reduced to some extent by applying for a number of facilitations such as temporary storage and the accreditation of an authorised economic operator. In respect of this accreditation, it will have significant one off cost but this will be outweighed by the long term benefits of simplifying the declaration process.
|2. The Customs (Special Procedures and Outward Processing) (EU Exit) Regulations 2018||Optional facilitation - positive impact: Introduces a number of important but optional special customs procedures for UK established businesses. Likely to be taken up by businesses in the wholesale, retail and manufacturing sectors.
These facilitations will introduce significant one off and ongoing costs but in the long term will help reduce to some extent the administrative burden of paying import duty and import VAT by deferring the point of payment or, in certain circumstances, suspending the import duty and VAT payments altogether.
|3. The Customs Transit Procedures (EU Exit) Regulations 2018||Optional facilitation - Positive Impact: An optional facilitation for UK businesses that allows goods to be moved across customs territories. HMRC thinks there will be significant one off and ongoing costs of applying and using the procedure but the long term benefits will outweigh these costs by giving businesses cash flow benefits and deferring the requirement to submit a full declaration and payment of import duty and import VAT until the goods reach their office of destination.|
|4. The Value Added Tax (Disclosure of Information Relating to VAT Registration) (EU Exit) Regulations 2018||Optional facilitation - Positive impact: An optional facilitation that allows UK and EU established businesses to look up UK VAT registration numbers. The small cost incurred is outweighed by the benefits of accessing the information.|
|5. The Statistics of Trade (Amendment etc.) (EU Exit) Regulations 2018||Confers an obligation – no impact. Amends existing EU legislation to retain existing obligations to submit Intrastat returns. No additional cost to business.|
|6. The Customs (Contravention of a Relevant Rule) (Amendment) (EU Exit) Regulations 2018||Confers an obligation - negligible one off cost: UK businesses trading only with the EU will need to understand the penalty regime and there will therefore be a small familiarisation cost. However, costs incurred as a direct result of non-compliant activity are not included as part of quantifying the administrative burden.|
|7. The United Kingdom-Crown Dependencies Customs Union (Isle of Man) (EU Exit) Order 2018
The United Kingdom-Crown Dependencies Customs Union (Jersey) (EU Exit) Order 2018
The United Kingdom-Crown Dependencies Customs Union (Guernsey) (EU Exit) Order 2018
|Confers an obligation – no impact. Introduces an obligation which maintains current rules so has no impact on UK or IoM businesses.
Confers an obligation – no impact. Introduces an obligation which maintains current rules so has no impact on UK or Jersey businesses.
Confers an obligation – no impact. Introduces an obligation which maintains current rules so has no impact on UK or Guernsey businesses.
|8. The Wharves and Temporary Storage Facilities (Approval Condition) (EU Exit) Regulations 2018||Confers powers to secondary legislation – no impact. Introduces a new discretionary power to impose an obligation on ports but it has no impact currently as a final decision has not been taken on how it will be exercised or when it will be commenced.|
|9. Port Approvals: The Wharves, Airport Examination Stations and Temporary Storage Facilities (Approval Conditions)(EU Exit) Regulations 2018||Confers an obligation – no additional impact. Introduces an obligation that has no additional impact on ports, airports or temporary storage locations.|
|10. The Customs (Temporary Storage Facilities Approval Conditions and Miscellaneous Amendments) (EU Exit) Regulations 2018||Confers an obligation – no additional impact. Formalises the existing approval process for businesses seeking to operate temporary storage facilities adding no additional burdens or impact. Also sets out the mechanisms for the presentation of goods between various modes of transport (road, rail, air etc), ensuring they are consistent with current requirements.|
This information comes from a live feed and will be subject to change. ↩
Authorised consignee – person or firm authorised by government to receive goods under the transit procedure (office of destination) (usually the buyer) named in the transportation documents/authorised consignor – person or firm authorised by government (usually the seller) who has ownership of the goods to move goods under the transit procedure (office of departure). ↩