The Taxation (Cross-border Trade) Act 2018 became law on 13 September 2018. Tim Williamson examines the impact of the Act in tandem with the original EU (Withdrawal) Act 2018 as part of the legislative process of Brexit.
Like it or loathe it (and there are plenty on both sides of the debate), Brexit is more likely than not to happen and businesses are required to examine closely how they may/may not be affected by leaving the EU.
The UK Government have enacted two key pieces of legislation over the summer, not without some difficulties.
The EU (Withdrawal) Act 2018
This is the big one – the one that formally repeals the European Communities Act 1972 that took us into what was then the EC.
The Act enshrines in law the day the UK leaves (29 March 2019 at 11.00pm), meaning that whatever happens with the Withdrawal Agreement with the EU, this date cannot be put back without an additional Act of Parliament.
The main part of the Act provides a mechanism to bring existing EU law into UK law to ensure continuity. As part of the Parliamentary process, an Amendment was laid down and approved giving provision for Parliamentary approval on the Withdrawal Agreement.
In the event of a deal being agreed between the UK and the EU, the deal has to be ratified by Parliament through the EU (Withdrawal Agreement) Bill, which can only be introduced to Parliament after the terms of the UK withdrawal are agreed. The Withdrawal Agreement Bill is likely to formally contain the transitional period from exit day to 31 December 2020.
The Taxation (Cross-border Trade) Act 2018
This Act deals with import and export duties, VAT, excise duties and other such provisions in order to facilitate trade after exit day:
- Import Duties
There is very little change on this, save for import duties will be applied to all goods entering the UK from both the EU and non-EU subject to a potential Customs Union with the EU.
Under the current arrangement, there is little administration in moving goods from another EU Member State to the UK. This means that the introduction of import duties will cause additional administration to businesses importing from the EU and could potentially cause errors in the beginning.
Additionally, import VAT due at the time of import could potentially cause delays in the goods getting to their destination for businesses not used to the importation process.
- Export Duties
There is very little change on this too, save for goods that are currently subject to dispatches to the EU will be treated as exports.
The costs of paying import duties to the EU will likely increase the cost of exporting to the EU. In addition, the administrative burden is likely to increase.
One of the key amendments included in the Act is what happens to VAT after we leave the EU. Little regard has been had for this tax but the bulk of VAT law derives from EU Directives and Regulations and, as the third highest revenue generator for the Government, it is a fundamental part of what happens after the UK leaves the EU.
Part of the Withdrawal Act is to implement EU law into UK law without fuss. This includes the existing law on VAT. However, although there may be a transitional arrangement, VAT is not due to be part of the transitional arrangement, which means that any VAT Directive or Regulation that comes into force after exit day does not apply to the UK.
It is unclear what impact this could have on UK businesses. After the UK leaves the EU, Parliament will be able to change the VAT Act as it sees fit, which means transactions currently regarded as reduced rate can be moved to zero-rate if the Government chooses. However, this also gives them the right to move items from zero-rate to standard rate.
However, it is unlikely the Government will bring forth substantially different legislation than the EU, largely because it would increase the likelihood of double taxation, making the UK an unattractive place to trade.
Broadly speaking, the UK now has the skeleton of a framework about Brexit after the final departure – whether this is on 30 March 2019 or 1 January 2021. This means that businesses can start to plan; however, those plans will be abstract until the final Withdrawal Agreement has been published.
From then, it will be a rollercoaster ride as the Agreement goes through Parliamentary scrutiny both here and in EU27 countries. As with everything crucial in politics, this one has the potential to go right to the wire.
For more information on how to prepare for Brexit, please contact Tim Williamson on +44 (0)20 7516 2376 or TWilliamson@pkf-littlejohn.com