HMRC letter warns of no-deal Brexit fallout

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HMRC has written to 145,000 VAT-registered businesses across the UK about the immediate ramifications of a no-deal Brexit.

The letter, written by HMRC’s deputy chief exec Jim Harra, details changes to customs, excise and VAT in the event that the UK leaves the EU without a deal. Harra’s letter called the no-deal eventuality ‘unlikely’ but said the “government continues to prepare for all scenarios”.

“In the event of no-deal, the government is committed to prioritising stability for businesses,” Harra wrote. “We will continue to work closely with industry to ensure that interventions in a no deal scenario are conducted in a way which minimises delays and additional burdens for legitimate trade, while robustly ensuring compliance.

“The approach of continuity does not mean that everything will stay the same, but the priority is maximising stability at the point of departure.”

The UK will be leaving the EU, including the Customs Union, at 11pm (UK time) on 29 March 2019. If this exit happens without a deal, there would be immediate changes to the way British businesses trade with the EU:

● UK businesses will need to apply customs, excise and VAT procedures to goods traded with the EU, in the same way that already applies for goods traded outside of the EU
● Trading partners in the EU having to apply customs, excise and VAT procedures to goods they receive from you, in the same way that they do for goods received from outside of theEU.

The government has avoided spelling out the potential problems a no-deal would cause, but the EU’s preparedness notices are more explicit. The EU’s notices offer a quick insight into the admin burden British businesses trading with the EU will encounter.

One notable example is VAT refunds, which are currently done via an online system for UK shippers and exporters. “We’ll be locked out of that and the businesses will return to the old pen-and-paper-style application,” explained Jason Hunter, a former international trade negotiator and anti-Brexit campaigner. “A lot of these customs duties need to paid up front, too.”

According to Hunter, there are numerous ways British businesses will encounter difficulty after Brexit, and the letter (and government communications generally) have skirted around these realities. Not enough is being done, according to Hunter, to educate businesses about a no-deal scenario.

By way of example, Hunter points to the added admin liabilities that will accompany VAT liabilities in the event of a no-deal Brexit. “If I’m selling to France or Spain or Germany, I need to create a nominated personal business in that country to be responsible for my VAT liabilities in that country.”

The suddenness of the exit is also not being emphasised, he said. “At 11:01 PM on 29 March, if you have goods in transit and you don’t have the paperwork prepared, it’ll get stopped as soon as it hits an EU border.”

A solution might be to use local suppliers for raw materials or goods, and avoiding the EU market (and thereby, the admin headache). But that’s not as simple as it seems, either. “The problem we’ve got in the UK is geology and geography. We’re a small island on the North-East edge of the Atlantic Ocean,” said Hunter.

“We don’t have a large landmass like Poland or Germany or the USA. We don’t have the raw materials to build stuff. So if you change to a UK supplier, more than likely they’ll be getting their raw materials from abroad, too.

“Back in the old days, we used the British Army as our trade negotiators. Nowadays, we cooperate with our neighbours to acquire the resources we need, to build our economy and make products. And we’re turning that upside down.”

About Francois Badenhorst

Francois

I'm AccountingWEB's business editor. Feel free to get in touch with comments, tips, scoops or irreverent banter. 

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18th Sep 2018 15:00

I saw a report the other day by Coutts saying that pretty much all their wealthy clients had their Brexit contingency plans in place and so they would not really be harmed by it. If only the same could be said for the rest of UK plc!

As the former Bank of England Governor Mervyn King said recently, it beggars belief that the world's 6th largest economy is in this insane situation.

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to Justin Bryant
20th Sep 2018 10:36

It's "will of the people" don't you know. Apparently the voters sanctioned all this chaos.

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18th Sep 2018 18:19

Pity they didn't "prepare for all scenarios" a couple of years ago.

Still - lesson learned, I suppose.

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18th Sep 2018 18:41

One preparation I am asking clients to do is to make sure that they give me all receipts etc paid whilst they are working in any EU country on a quarterly basis. The EU VAT reclaim is calculated on a calendar year so we have until the end of this month of Sept to submit a claim for the calendar year to 31 Dec 2017.
However, a claim can be made whenever - monthly, quarterly - so I am making claims on a quarterly basis for all expenses incurred since 1 Jan and will make sure that one is made by 29th March.

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By DJKL
18th Sep 2018 20:53

"Trading partners in the EU having to apply customs, excise and VAT procedures to goods they receive from you, in the same way that they do for goods received from outside of the EU."

Not totally correct, where an EU country currently has a FTA /PTA or similar type agreements with non EU countries, as we currently do via our current EU membership, the checks and paperwork may be less than if there is no FTA/PTA/similar

If the existing EU trade deals with ROW do not passport to the UK in a no deal scenario (and there are currently a fair few ROW countries (10 at least) objecting to proposed carve ups re quotas etc re same) then a lot of the trade we currently have with the ROW will also require more paperwork.

Right now, as things stand, in a no deal exit it is not just UK-EU-UK trade that will develop friction it will also possibly impact a fairly large part of UK-ROW-UK trade.

http://www.consilium.europa.eu/en/infographics/eu-trade-map/

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19th Sep 2018 09:50

The commentator in the link below explains just some of the unpalatable consequences from this highly lamentable situation fairly accurately in my view:

http://1exagu1grkmq3k572418odoooym-wpengine.netdna-ssl.com/wp-content/up...

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to Justin Bryant
19th Sep 2018 11:42

Yeah - it'll be like Y2K.

No problem at all.

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to lionofludesch
20th Sep 2018 10:04

lionofludesch wrote:

Yeah - it'll be like Y2K.

No problem at all.

I know this is tongue in cheek, but I'm always baffled by that comparison.

The reason Y2K wasn't a massive disaster was down to thousands of talented people preparing and installing solutions to ensure that it wasn't.

The reason Brexit (of any variety) will be a disaster is because it's been put in the hands of the likes of Liam Fox and David Davis, who couldn't arrange an evening of alcoholic refreshment in a place where alcoholic refreshment is produced.

Y2K is comparable to Brexit in the same way that Donald Trump is comparable to a normal, rational human being.

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to gilderda
20th Sep 2018 11:44

gilderda wrote:

lionofludesch wrote:

Yeah - it'll be like Y2K.

No problem at all.

I know this is tongue in cheek, but I'm always baffled by that comparison.

The reason Y2K wasn't a massive disaster was down to thousands of talented people preparing and installing solutions to ensure that it wasn't.

The reason Brexit (of any variety) will be a disaster is because it's been put in the hands of the likes of Liam Fox and David Davis, who couldn't arrange an evening of alcoholic refreshment in a place where alcoholic refreshment is produced.

Y2K is comparable to Brexit in the same way that Donald Trump is comparable to a normal, rational human being.

OK - it'll be like the couple of dozen Ends of the World that I've managed to survive.

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to lionofludesch
20th Sep 2018 10:03

*duplicated post*

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to lionofludesch
20th Sep 2018 10:06

Indeed - after all, just like Y2K it is a very simple problem, with a solution well understood by everyone, we've been working solidly at it for years, with thousands of specialists spending all their time on it.

Oh, wait - it's a very complex problem, hardly anyone even understands basics of whatever solutions there may be, almost no-one has been working on it until very recently, and there are very few specialists around to work on those solutions anyway.

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to Justin Bryant
20th Sep 2018 09:37

It also suggests some of the more palatable consequences such as a ban on live exports and fewer foreign lorries on British roads. But overall just another document highlighting problems rather than proposing solutions. Let's have a bit more glass half full

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to Knight Rider
20th Sep 2018 10:19

And fewer British lorries on European Roads - I bet the British haulage industry is really looking forward to that! And we could have banned live exports if we'd wanted to, just like we could have sent home EU migrants who hadn't got a job after 3 months - our wonderful governments (of both colours) just choose not to.

Maybe the document doesn't propose solutions because there really aren't any?

Never mind about glass half full. No-one has even managed to suggest a single droplet of any sort to put into the glass. It's not half-empty, it's bone dry.

Even Rees-Mogg has estimated that it will be 50 years before we see any net advance on where we are now - and by then the EU will be so far ahead they'll be almost out of sight.

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to JohnBanks
20th Sep 2018 11:23

Plenty to be optimistic about. All change creates opportunities. The relentless pessimism of those that can't accept the result is hindering progress.
You are right that if the Governments had addressed people's concerns on immigration earlier the outcome could have been different. But they didn't .
If the Eu had allowed David Cameron to fulfil his promise of fundamental reform and treaty change the outcome of the referendum could have been different. But they didn't.
And now we are leaving and we have to deal with it. Whinging about forms and queues doesn't help.

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By Sheenan
to Justin Bryant
20th Sep 2018 09:56

http://eureferendum.com/results.aspx?keyword=George%20Peretz

For completeness and expert comment on George Peretz views on Brexit you might like to read the above link.

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20th Sep 2018 09:47

is this just a bit of unsolicited advice about something that may never happen, or is it HMRC playing politics?

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By 0098087
20th Sep 2018 09:49

It's about time government stopped this charade for what it is. And it was shown in the report by the right wing. Bonfire of environmental, employment, food standards and health and safety legislation. Make the rich richer, the poor poorer. Hormone injected beef from the US and chlorine washed chicken. Their food standards are lower than ours. Why would we want them, and let them have access to our NHS. The right wing plan to privatise the health service would be up and running.

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to 0098087
20th Sep 2018 11:46

0098087 wrote:
Make the rich richer, the poor poorer.

Brexit has nothing to do with that. It's just official Tory party policy.

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20th Sep 2018 09:58

Whatever happens the common sense approach would be to carry on as now until an acceptable alternative (if really needed) can be found. I think the point that has been lost in all this is that the EU and UK still want to trade with each other. We just want to be able to control immigration (by controlling the movement of labour) and make our own laws. Surely that is what all the EU countries would want. The sticking point, and really the EU should think very deeply about this, is linking access to SM with immigration.

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to johnjenkins
20th Sep 2018 10:09

johnjenkins wrote:

Whatever happens the common sense approach would be to carry on as now until an acceptable alternative (if really needed) can be found. I think the point that has been lost in all this is that the EU and UK still want to trade with each other. We just want to be able to control immigration (by controlling the movement of labour) and make our own laws. Surely that is what all the EU countries would want. The sticking point, and really the EU should think very deeply about this, is linking access to SM with immigration.

If you want to be a member of a club and enjoy all the benefits that membership brings, you agree to abide by the same rules as every other member. That's a pretty universal standard applied across all walks of life.

The idea that the EU is somehow being intransigent by not allowing the UK to pick and choose which bits of the relationship it wants to keep is part of the narrative to prepare for a disastrous no-deal exit. Then the blame can be pinned on those "unelected" Brussels Eurocrats not playing fair, rather than on the idiots in government who have sat on their hands for two years knowing full well they can't deliver the sunlit uplands they promised.

The status quo (unleash your Status Quo jokes here) will not and cannot be maintained if the UK leaves the EU. It will become the same as every other non-member until such point as it agrees a trade deal to the contrary. It might come as a surprise to some, but the EU does not need frictionless trade with the UK in the same way the UK needs it with the EU.

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to gilderda
20th Sep 2018 10:20

Denim Clad, 3 chord it can only be the Quo

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to gilderda
20th Sep 2018 10:38

"Whatever you want" etc.
I totally accept that if you want to be a member you abide by the rules and if you don't like the rules you cease being a member. That part is simple.
However if there is interlinking, crime detection, immigration, some trade etc. etc. then surely the common sense approach is to leave those ties as they are but work on new rules for the future so as not to disrupt existing agreements. Let's face it we are still going to trade with the EU (however I suspect the EU will be changing dramatically soon) and buy holiday homes.
Just to let you know, there are many of us that think the EU need us more than we need them. The operative words are Rigidity and Compliance. Let's replace them with flexibility and common sense and that is what the Chequers Agreement is all about.

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By vstrad
to gilderda
20th Sep 2018 15:59

You'd have a point if the EU really was a rules based organisation. In fact, they break their own rules whenever it suits them. Otherwise, how did Greece get to join the Euro? Plus countless other examples.

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By mhkay
20th Sep 2018 10:06

I got one of these letters. The oddest thing about it was it says "The information from your VAT registration shows that ... you do not currently trade with non-EU countries." Actually, 50% of our business is selling software to the US (but how would they know that?) When Theresa May said in her TV interview last week that most small businesses did not trade outside the EU, I suspect this was based on the same incorrect information.

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20th Sep 2018 10:09

Lets get down to practical examples. In May and June this year I bought Asparagus in Tesco's, sourced from a farm two miles down the road; two weeks later from a farm in Poland; three weeks after that from a farm in Peru.

In each case I paid £2 for the asparagus.

Its seems the disparity in transport logistics, customs procedures, packaging and pricing are well understood by the whole supply chain to the point where the mug consumer just pays up and accepts it all.

Why should we worry about Brexit? The retailers have got every scenario templated and are rubbing their hands in glee at the "Cost of Brexit, guv" excuses to make more profit.

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By 0705736
to BlueNose1812
21st Sep 2018 19:32

BlueNose1812 wrote:

Lets get down to practical examples. In May and June this year I bought Asparagus in Tesco's, sourced from a farm two miles down the road; two weeks later from a farm in Poland; three weeks after that from a farm in Peru.

In each case I paid £2 for the asparagus.

Its seems the disparity in transport logistics, customs procedures, packaging and pricing are well understood by the whole supply chain to the point where the mug consumer just pays up and accepts it all.

Why should we worry about Brexit? The retailers have got every scenario templated and are rubbing their hands in glee at the "Cost of Brexit, guv" excuses to make more profit.

Surely it could be simple competition that keeps the cost of asparagus stable? My recollection of studying economics a lifetime ago tells me that in conditions of perfect competition prices of identical goods from different suppliers will be the same. If you can't supply it at (or below) the prevailing price you shouldn't be in the market. Someone else will undercut you.

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20th Sep 2018 10:21

There will be no deal in palce by the 29th March 2019, soooooooo I will be reading the above very carefully, but there will a deal done within a month of the 29/03/2019, so if we are lucky HMRC will overlook the period we left the EU without an agreement, and advise us to treat Vat transactions as usual.

Brexit, its getting gritty.It made me laugh when David Davis resigned late Sunday night, but only after he went to the British Grand Prix, shows you how serious he was taking Brexit and he was the minister.

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to AndrewV12
20th Sep 2018 10:43

Unfortunately David didn't stand a chance right from the off. I should think by the time he resigned he didn't give a monkeys.

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By 0098087
20th Sep 2018 10:24

It's shocking that someone with the views of Rees-Mogg is given credibility in 2018 Britain. I thought when Tony Blair and latterly David Cameron got in we'd put all that nonsense behind us. But with hatred and vile spurted by the Sun and The Mail obviously not.
As for what we can and can't do in the EU. People are so so wrong.

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By 0705736
to 0098087
21st Sep 2018 19:43

0098087 wrote:

It's shocking that someone with the views of Rees-Mogg is given credibility in 2018 Britain. I thought when Tony Blair and latterly David Cameron got in we'd put all that nonsense behind us. But with hatred and vile spurted by the Sun and The Mail obviously not.
As for what we can and can't do in the EU. People are so so wrong.


Democracy is such a bore isn't it? Ditto freedom of speech.
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20th Sep 2018 10:26

"Hunter points to the added admin liabilities that will accompany VAT liabilities in the event of a no-deal Brexit. “If I’m selling to France or Spain or Germany, I need to create a nominated personal business in that country to be responsible for my VAT liabilities in that country.”

What? Does that mean that I've been doing my all-round-the-world export things wrong for the last 24 years - I haven't set up a nominated personal business in Canada, USA, Australia, Lebanon, UAE, China, Malaysia.....

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to Nigel Wulcko
20th Sep 2018 10:49

Exactly. Who is peddling this rubbish. Must be a mate of Mark Carney's, probably the person who predicted inflation would come down.

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By 0098087
to johnjenkins
20th Sep 2018 10:52

Could it be the same as 1 million jobs lost if we had the minimum wage in 1997..oh hang on..that was a Tory

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to 0098087
20th Sep 2018 10:58

The beauty about spouting rubbish or goofing up is that it doesn't matter what party or financial institution you belong to nobody believes it anymore.

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21st Sep 2018 08:54

The situation on Digital VAT is not mentioned. Our membership of the VATmoss portal will also cease.

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By mhkay
to AnnabelK
21st Sep 2018 09:16

At last a practical comment rather than a rant. I have been wondering about the same thing, but my assumption is that we will be like other non-EU suppliers selling digital goods (or services?) into the EU, and can register for MOSS as a non-EU supplier.

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to mhkay
24th Sep 2018 09:40

Rants are normally based on either the lack of practical information or the practical information doesn't make sense. Hence Brexit and MTD are coming under mahusive rants (mainly cos no one knows where we are going). We can all surmise and predict but we won't know until the fat lady sings.

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24th Sep 2018 12:44

I've come to this post late but would make 2 observations:
1. why write to only 145,000 businesses?
2. JohnBanks says there will be fewer lorries. I travel up the A303 at least twice a month. To reduce the monotony (I've seen Stonehenge loads of times) I count the number of foreign lorries. The number was minimal pre Bexit. Post Brexit I dont bother counting as there are too many - every other lorry has a foreign number plate and they are all coming down to the West Country.

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to Jennifer Adams
24th Sep 2018 13:36

Loads of foreign wagons tootling around the North both pre and post-Brexit. And that's not including the Irish ones.

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to lionofludesch
24th Sep 2018 14:14

I regularly go up and down M6 and M5 and yes the double barreled foreign lorries are abound. Mind you the John Lewis lorries only just get under the bridges. We try to guess how much distance twixt bridge and lorry.

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