Jo Bello, our Global Indirect Taxes leader, explores how organisations can take a ‘no regret’ approach to preparing for the future border.
Brexit has the potential to create some unusual and unprecedented changes to the UK-EU border and how businesses engage with it, with additional complexity when it comes to the border in Ireland. In the course of the last year, slowly but surely, more information has become available on how the border may work. Albeit - the challenge of how to avoid a hard border on the island of Ireland, whilst simultaneously leaving the Customs Union and preserving the integrity of the United Kingdom - remains unresolved. With the 31 October approaching, and arrangements for long distance shipments needing to be in place well in advance of the exit date itself, businesses are increasingly focusing on getting ready for new trading and border arrangements, however many are still unsure what to do and when to do it.
In my role as Global Indirect Taxes leader, I lead a large global network of customs and international trade professionals who support clients with managing their imports and exports so the focus for my ‘no regrets’ recommendations today is - perhaps naturally - around getting ready for the new UK-EU border for VAT and duties and focusing on data in particular.
The recent Interim Report on Alternative Arrangements for the Irish Border sets out initial recommendations on how the border could potentially be managed, that while pragmatic, could prove challenging for the new Prime Minister to negotiate with the EU. In any case, there are some good practices that organisations the world over undertake to minimise disruption at any border. And these, more than ever before, are relevant to UK and EU businesses who currently operate within the Single Market and Customs Union.
So, here are my three ‘no regret’ decisions in relation to preparing for the future border:
First, clean up your current data - However the UK-EU border ends up working in the future, data will be key, and much more so than it has been historically for intra-EU trade where tariffs have not been applied. It will become even more critical if we are successful in creating innovative solutions for enhanced data sharing and risk profiling, for example, which uses pre- and post- declaration functionality to streamline the border crossing.
Investing in clean, well-classified data for goods being traded with the EU27 today is a prudent first step in preparing for change at the border. Key to this, will be the review of a business’ “intrastat” data. Intrastat has a commodity code reporting requirement for intra-EU trade. The 8 digit commodity code will often need to be expanded on and checked for accuracy in future, as post-Brexit the commodity codes used will be expanded to 10 digits and will have a duty liability decision attached to them in terms of imports into the UK from the EU and vice-versa. The classification will also determine if the business will be subject to any additional reporting requirements for those goods, for example, the requirement to provide licences or certification upon entry into the UK.
There are a range of potential indirect tax approvals and registrations which may either benefit your business or simply be a requirement for you to continue to import and export post Brexit. These include:
Approvals required to import and export:
VAT registrations(which can change in nature for UK companies);
EORI (Importer of Record registration); and
specific licence requirements (type of goods dependent)
Approvals to reduce admin and indirect tax costs:
Customs Comprehensive Guarantee; and
TSP – Transitional Simplified Procedures.
Approvals to optimise your supply chain and indirect tax efficiency, for example:
Inward processing; and
So it’s a good time to review and ensure your data is accurate and appropriately coded and stored now, to make the process simpler from day one post Brexit.
Second, build ways to capture more data - Given the latest position from the UK Government and the EU Commision, it is highly likely that imports from the EU27 will require the declaration of additional data for the processing of customs clearances. This will mean that all businesses importing into the UK or exporting out of the UK will need to file an import or export declaration. This is in addition to all businesses importing into the EU and exporting out of the EU. Those businesses which have never traded outside of the EU will need to find new data to build a customs compliance framework for data collection and control. Those businesses which are used to importing into the UK would be well advised to brush up on their data and communication routes to clearance as the accuracy of pre-clearance declarations is likely to become key to faster clearance times.
In addition to checking master data already in existence, businesses should plan to capture the origin and value of product content from the UK, EU and any other countries, in order to take advantage of any Free Trade Agreements (FTAs) which may be negotiated. Whilst many ERP systems offer this functionality, given that systems and process changes can take time to implement and fully embed, understanding the as-is, as well as scoping and planning future systems now, means a business will be better positioned to meet new government requirements on day one, whatever they may be.
Third, take advantage of existing government schemes - schemes designed to support importers and exporters trading outside of the EU will have, by their nature, offered no upside historically for businesses who trade within the EU. However, in a post-Brexit environment, such schemes will be available to all businesses who will then be trading internationally. Many businesses have recognised that they may be faced with a ‘double-duty hit’ post-Brexit, where they will pay duty firstly in the UK when importing from outside the EU and then again when the goods are imported into one of the Member States. In order to combat the first duty hit, businesses are looking at establishing a customs warehouse in the UK, or using a scheme like Inward Processing. In both scenarios customs duty and import VAT are absolutely suspended to the extent that the goods will be subsequently exported from the UK.
Organisations should be assessing themselves from a process and procedure perspective to get up to Authorised Economic Operator (AEO) standards. AEO may offer the potential for customs simplifications going forward and in terms of the safety and security aspect, may offer benefits in mutual recognition with AEO schemes of other international trading blocs.
What is clear is that special procedures, like customs warehousing, inward processing, Transitional Simplified Procedures and then AEO, offer the opportunity of future competitive advantage and also cash flow benefits, regardless of how the future border is managed. Moreover, given government resources to manage applications are becoming scarcer and the application process can take several months, a business should consider performing a cost-benefit analysis on these schemes and how to put them in place quickly so that they to put themselves in the best possible position as fast as possible for when the UK leaves the EU.
These three steps combined, would put an organisation on the front foot for responding to the future border, however events may develop.