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Deal or no deal: What happens after a 'no deal Brexit'?

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1st Aug 2018
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A new guide by the ICAEW examines the trade and tax implications of a 'no deal Brexit'. And, to be honest, it doesn't sound all that great. 

The American poet Robert Lowell once said that the light at the end of the tunnel is just the light of an oncoming train. It’s hard not to think of Lowell’s cynicism as the Brexit deadline approaches and the political theatre intensifies.

For everyday businesses, entities that have quotidian concerns like cash flow, profit and loss, Brexit isn’t just a political parlour game. It’s a real, existential concern. And it has proved difficult to find any sort of steady guidance on what to expect in a post-EU United Kingdom.

“The changes brought about by Brexit are likely to be the most profound we have seen in a generation,” the ICAEW wrote in its recently published Brexit guide for businesses. “While on 12 July 2018 the UK Government published a white paper with its preferred approach proposing an economic and security partnership with the EU and a frictionless border for goods, it remains to be seen whether such an aspiration is achievable.”

Emphasis on “achievable” because any agreement means taming all sorts of political agitation at home and gaining the acquiescence of the remaining 27 EU member states. Certainty is hard to come by.

You’ve likely heard the phrase “no deal Brexit” being uttered at some point. Depending on your outlook, this is either a glorious recapture of Britain’s nationhood or a disastrous crash landing. Either way, a no deal Brexit means a few things in particular.

“Brexit could necessitate new trade arrangements for businesses across the UK and Ireland, as well as creating new requirements to pay customs duties,” advised the ICAEW. “Businesses will need to look at their supply chains and establish exactly how Brexit will affect them and what actions they need to take to prepare.”

The important transition here is from the Customs Union to the EU customs regime. The Customs Regime is the hardball version of the EU’s trade rules (at least when compared to the frictionless Customs Union).

The regime applies to countries outside the EU Customs Union, called ‘third countries’ in EU bureaucratic argot. If the UK leaves the EU Customs Union, then it will be a third country. Duty is paid when the goods from third countries first enter the EU and there will be customs checks between the EU and the UK.

“In some respects, we already know what the situation will be like because there are already third countries that we import goods and services from,” said Nick Hunt, a VAT consultant for Omnis Vat and former VAT officer for HMRC.

“From a compliance point of view, if we end up with ‘no deal’, it will create major headaches for businesses that are using the EU as a means to bring items in without duties.” And that’s not just completed products, as Hunt pointed out, many businesses import components for use in manufacturing.

“Businesses will need to think about how it will impact logistics. They might be sourcing goods from the UK and the EU. Perhaps they will have to change this.” At present, you’re expected to pay VAT and duty to import goods from a third country.

It’s possible to delay this payment of VAT and duty - but that involves your bank guaranteeing you’re good for it, explained Hunt. “Smaller businesses might not be able to do that. They can’t receive the backing from the banks.”

Hunt was careful to not veer into anti-Brexit hysteria, however. “It’s not to say that the government can’t strike new agreements elsewhere. But at the moment, there’s nothing in the pipeline. At least not publicly. Looking beyond the horizon. There’s nothing to be seen. That’s why there’s all this uncertainty.”

Replies (13)

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By Justin Bryant
01st Aug 2018 11:48

I confidently predict complete & utter chaos (which is of course exactly what the EU want and since they hold most if not all the cards here they can effectively hold the whole UK to ransom). The politicians do not currently have a clue how to solve this one - they are well & truly over a barrel (or several barrels).

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By neiltonks
01st Aug 2018 16:47

All the uncertainty is leading to a lot of scare stories, which may or may not be based in reality. The trouble is, individually they all sound plausible and hardly anyone is saying with authority that any of them definitely won't happen, so they continue to gain traction.

If you believe them all, Brexit could cause food and fuel rationing, the armed forces on the streets delivering what little food there is, the unavailability of medicines, the end of air traffic into and out of the UK, a queue of lorries half way from Dover to London and loads more besides, up to and including a breakdown of government and the introduction of martial law.

Now, I can't imagine that all (or even most) of this will actually happen, but the dithering and indecisiveness we see from the government provides a fertile breeding ground for such "year zero" theories.

Someone needs to get a grip, and soon. Whatever your thoughts on whether Brexit itself is a good or bad thing, it's certain that no-one voted for ration books and the sick going without medicines! If the government allows Brexit to be too painful, people will rebel at the next election. Labour government, anyone?

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Jennifer Adams
By Jennifer Adams
01st Aug 2018 17:28

A few months after the referendum I watched one of those committee meetings you can view on Parliamentary online. Someone (cant remember who) was asked what the government had done so far towards Brexit.
Whoever was the govt rep (not an MP but someone behind the scenes) said that he personally had done a lot. He said that he'd travelled to every EU country and hadnt seen his family for weeks.
I would also make this observation...
As anyone who reads by blog will know I travel up the A303 nearly every month (and back again!). To relieve the monotony (I've seen Stonehenge = done that) pre Brexit I used to try to guess from which country a particular lorry was from by their number plates.
Now I dont bother. Why?? Every other lorry is foreign and they are all coming down to the West Country.

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Replying to Jennifer Adams:
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By vstrad
02nd Aug 2018 11:31

Exactly. So if there is a queue of lorries from Dover to London, most of the vehicles in it will be foreign, leading to financial ruin for the haulage companies and frustration for all those European businesses that can't get their goods moved to customers in both the UK and on the continent.
Which is why it won't happen.

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By Knight Rider
02nd Aug 2018 09:30

We can be certain that every day will bring more scare stories from customs hold ups to rationing and dogs going without passports. The Irish border will probably keep popping up as well. But do we really need to be concerned? Not really. The market will find a way. Freight forwarders will need to tick some different boxes and some businesses will re-source outside the EU as duties fall. Shipping routes will change to take advantage of tariff changes.
We will still have French wine and drive German cars (even if they are made in China or the US).

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Replying to Knight Rider:
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By neiltonks
02nd Aug 2018 11:10

Yes, but wouldn't it be a sad indictment of our political leaders if the only way to obtain a German car was to ship it from China or the US because we weren't allowed to get it direct from Germany. People voted (or at least thought they were voting) to leave the EU, not to stop trading with Europe.

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Replying to neiltonks:
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By Knight Rider
02nd Aug 2018 11:45

Absolutely. And isn't it noticeable how while the British wish the EU well in their integration project we get little more than threats and intimidation in return. We ask for free trade - they say Nein, Non, no cherry picking.
No one wants to stop trading with Europe, we just don't want to be dragged through the European Courts for selling a pound of bananas for 42p.
We have nothing to fear with no deal, there are no deals with anyone else and we can import and export perfectly well.

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Replying to Knight Rider:
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By neiltonks
02nd Aug 2018 12:34

Yes, we do seem to be getting threats that we'll be treated less favourably than all the other non-EU countries. Take air travel. The European air traffic control system deals perfectly well with all the flights between the EU and every other non-EU country in the world. However it's reported that we're being threatened that we might be ostracised and no air traffic into or out of the UK will be allowed after Brexit (as it's pretty well impossible to get anywhere from the UK without entering EU-controlled airspace).

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Replying to neiltonks:
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By Knight Rider
02nd Aug 2018 13:00

Just more scaremongering nonsense pedalled by sour- faced doom laden EU phobic whingebags. Ireland might have a problem if it can't fly in British airspace.
What are they going to do? Shoot down British planes. No - more constructive discussion is required.

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By Agutter Accounts
02nd Aug 2018 10:56

I think whole point is that we simply don't know what is planned - if anything.

I am no fan of politicians - no one who deals with the tax system would be surely.

But on this occasion they have surpassed themselves in sheer irresponsible stupidity.

Our whole regulatory and customs regime is built round the EU system. If we are going to change this, common sense says it should be properly planned and announced well ahead of implementation. that gives interested parties, especially businesses clarity, and the opportunity to have input into the final scheme.

But no. That's apparently not going to happen. The vacuous statement "will of the people" rules apparently.

This whole situation is a train crash waiting to happen. We're stuck on the tracks on a level crossing with a high speed train rushing towards us. Who will pull us clear?

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By hadleigh
02nd Aug 2018 16:05

Two points:
1 you cannot undo 40plus years of EU- Creep in 2 years it will take much longer
2. Many years ago a doyen of the Federation of Small Businesses suggested that the power of manufacturing and sales would be driven by mainland Europe; the UK would be the Consumer Region(s) of the EU.

....... And it came to pass......

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By lildanfen1
04th Aug 2018 00:59

I seem to see a scare type rhetoric coming from media, the bully tactics from the EU and the why fight attitude.
We as a small island once were a world power.
I see no fight, no pride and certainly no plan.
I witnessed the 7/7 bombings, Londoners and a country showing the world we were hardy and resolute.
Whatever our choice was on the EU referendum we were lied to by both parties.
We are seeking compensation from financial industries for misleading the public but we can not change our minds on a decision made on a bed of lies?
Ireland's 1st decision to join the Euro was a no, a 2nd referendum was held and the decision was a yes.
I am a leave voter not because of the bull that was fed to us or that I believe our immigration policy is unstable. As an accountant I fight daily for HMRC to issue basic NI numbers to EU residents who are legally entitled to those numbers. I watch EU member residents turned down and disheartened they go away and they still work and earn money they still use the NHS but our own government stops them paying tax into the system they use. The majority of the worlds population want to work, why stop them? The people escaping war torn countries are not poor or down trodden they are usually the rich and the educated. Doctor's, Solicitors, teachers and nurses, we grant asylum and ensure their comfort but deny them the ability to work?
We as a country conquered the known world, we were ruthless and we are hated to this day for the attrocites we delivered to all those we conquered. We brought slaves to our isles and traded in their flesh, our country is culturally diverse because of this but government use immigration as a scare tactic to anger its subjects

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Replying to lildanfen1:
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By Knight Rider
06th Aug 2018 15:17

Are you arguing for more effective border enforcement? Or highlighting the immorality of bringing the richest and most educated from wore torn countries whilst leaving the most vulnerable behind? Or perhaps you are suggesting that Governments should be more honest about immigration instead of trying to dismiss the concerns of people like Mrs Duffy with allegations of bigotry.
Whilst immigration was a factor in the vote the UK now has the opportunity to build a fair and equitable immigration policy that does not discriminate against non EU citizens.

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