Brexit – where to now?
Phase 1 of the negotiations concerned three issues, citizens’ rights, the UK financial settlement and the border between Ireland and Northern Ireland.
The border is the key issue from an indirect tax perspective in particular for customs duty and VAT. In December 2017 the UK promised that there would be no hard border between the UK and Ireland and that, in the absence of an agreed solution on the border, the UK would maintain full alignment with the rules of the single market and the customs union. These agreements allow goods move freely within the EU without payment of any customs duty or tariffs and with a common rate of customs duty payable on all goods entering into all EU countries from a non EU country. However, this promise has to be considered in the context of the UK commitment to leave both the customs union and the single market.
When considering the impact that a border will have on the movement of goods there are three key issues that need to be examined, firstly customs duties payable on goods entering the UK from EU countries and on goods entering the EU from the UK, secondly the additional administrative burden and thirdly, border checks.
The imposition of customs duties can make goods more expensive for consumers with considerable affects for suppliers. If there is no deal on this issue customs duties will be based on current WTO rates, e.g. the rate of duty on sales of frozen beef to the UK would be 87% and 42% on cheddar cheese. On the matter of border checks Michel Barnier has stated that if the UK leaves the single market and the customs union border checks are unavoidable.
Notwithstanding, the level of uncertainty of the consequences of Brexit for businesses we strongly recommend that businesses would plan for Brexit now and plan on the basis that there will be a hard Brexit - plan for the worst and hope for the best. Each business should carry out a robust assessment of the potential Brexit impact on their business, identify the specific risks it may face and develop an appropriate strategic response. Even if businesses consider themselves well prepared they should ensure that their key suppliers are equally prepared.
The impact of Brexit for businesses will vary depending on a range of factors including the level of trade to and from the UK for the business itself, its customers, its suppliers and its competitors. The German automotive parts industry has estimated that a hard Brexit could threaten around 14,000 jobs, result in a decline in revenue of approx. €3.8bn with around 770,000 fewer cars being sold following the Brexit transition period. Closer to home Dublin Port has announced that it is planning for a hard Brexit and will apply for planning permission to construct the new infrastructure it expects will be required to deal with additional customs checks.
So the most immediate questions are what potential impact will Brexit have on your business and what plans has your business made to deal with those impacts? To discuss the above in more detail please contact John Stewart.