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What might happen if a Brexit deal is agreed this week

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Brian Palmer, tax policy adviser at AAT, considers where Boris Johnson’s new Brexit deal could leave the UK business community and outlines where accountants and bookkeepers should focus their attention.

22nd Oct 2019
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Towards the end of last week, Prime Minister Boris Johnson was confident that a deal was on. He was clear, all that was needed was for Parliament to sit on Saturday for the first time in 37 years, and he sounded confident that he had the cross-party backing he required.

However enter former Tory, now Independent, Sir Oliver Letwin’s cross-party motion to "withhold approval" until legislation implementing Brexit has been passed. It was close but the government lost by just 16 votes, 322 to 306. 

Under the terms of the ‘Benn Act,’ the Prime Minister was left with no option but to send a letter to Brussels requesting a three-month Brexit delay to 31 January 2020. By 11pm Saturday, this was done.

However, Johnson did not just submit the Benn Act letter, albeit unsigned and noting it was from Parliament. He also sent a second longer, signed letter, stating that he believes a further delay to Brexit would be costly to both the UK and to the EU.

Where are we now?

Although there remains a strong possibility that the EU will accept the UK’s request for a further extension, the UK’s Prime Minister is adamant that it will leave the EU at the end of the month.

While an orderly 31 October Brexit is by no means certain, accountants, bookkeepers and businesses should look at the UK government and HMRC’s Brexit web-based support service, as it will help all those with a business interest to plan or provide added-value help and advice to clients or employers.

With all the focus being on a no-deal Brexit it’s easy to forget that a deal is entirely possible and that we should all be planning for the eventuality at the same time as for a no-deal.

Getting ready for Brexit’ is the government’s website landing page for all things Brexit. While it has been updated to acknowledge ‘A Brexit deal has been agreed in principle with the EU’ it also recognises that ‘both the UK and the EU need to approve and sign the withdrawal agreement.’

What are the key elements of the deal?

The new protocol thrashed out last week replaces the controversial Irish backstop plan in Theresa May's deal. Much of the rest of the former PM’s deal remains the same.

Here are some of the key new aspects to the proposed EU withdrawal agreement:

Customs 

Ultimately, the whole of the UK is destined to leave the EU customs union, leaving it free to enter into trade deals with other countries in the future.

There will be a legal customs border between Northern Ireland and the Republic of Ireland (which stays in the EU). But in practice, the customs border will be between Great Britain and the island of Ireland. Goods will be checked at "points of entry" in Northern Ireland. 

Import duty will not automatically have to be paid on goods coming into Northern Ireland from Great Britain. However, where something is "at-risk" of then being transported into the Republic of Ireland (which remains part of the EU customs union) duty will be paid. 

What is considered ‘at risk’ is to be decided by a joint committee made up of UK and EU representatives.

Regulations on goods

When it comes to the regulation of goods, Northern Ireland will be required to comply with the EU single market rules, rather than those of the UK.

This removes the need for product standard and safety checks on goods at the Irish border, although it will add to the checks between the rest of the UK. The UK mainland will not be obligated to stick to the single market rules.

Enforcement

Enforcement will be carried out by UK officials at "points of entry into" Northern Ireland, with EU officials having a right to be present and possibly able to overrule UK officials.

Northern Ireland has a right to an opinion

With Northern Ireland standing apart from the rest of the UK when it comes to customs and other EU rules, the deal gives its assembly a vote on these provisions.

That said, the NI Assembly will not vote until January 2025, at the earliest – four years after the end of the transition period, due to run until the end of 2020.

If the assembly votes against the provisions they would lose force two years later, during which time the "joint committee" would make recommendations to the UK and EU on "necessary measures". 

If the assembly accepts the continuation of the provisions by a simple majority, they will then apply for another four years. However, if the deal gains "cross-community support" they could apply for further eight years, or until a new agreement on the future relationship is reached if that comes sooner.

If the assembly is still not sitting at that point the UK government has said it will make alternative arrangements for the vote.

VAT 

Another interesting feature of the revised agreement is that EU law on Value Added Tax will continue to apply in Northern Ireland as far as goods are concerned, but not services.

This could lead to the curious scenario whereby Northern Ireland could have different VAT rates to the rest of the UK, something that currently would not be entertained under existing EU law.

For example, if the UK decided to reduce the general rate of VAT on welfare items such as smoking cessation products or air source heating pumps to, say, 2.5%, Northern Ireland would still have to keep it at 5%. This is because the latter percentage is the EU minimum.

It also means that Northern Ireland may get the same VAT rates on certain goods as the Republic of Ireland, to stop there being an unfair advantage on either side of the border.

What’s left from the May deal?

Much of Mrs May's original Brexit deal will remain. Some of the key areas are:

Transition

The transition, the period of time during which all of the current rules stay the same allowing the UK and the EU to negotiate their future relationship, is due to last until the end of December 2020.

The UK will need to abide by EU rules and pay into the EU budget but will lose membership of its institutions.

The transition can be extended, but only for a period of one or two years. Both the UK and EU must agree to any extension.

Rights of the citizen

UK citizens in the EU and EU citizens in the UK will retain their residency and social security rights after Brexit.

The current freedom-of-movement rules remain unchanged throughout the period-of-transition. Anyone who is resident in the same EU country for five years is allowed to apply for permanent residence.

Divorce bill

The UK will still have to settle its financial obligations to the EU. The amount owed was recently estimated to be £33bn, with previous estimates putting it as high as £39bn.

The biggest part of the ‘divorce bill’ will be the UK contributions to the 2019 and 2020 EU budgets. As the UK has already delayed its EU exit, some of that money has been paid as part of the UK's normal membership contributions already.

The Office for Budget Responsibility predicts that around three-quarters will be paid by 2022, with some relatively small payments continuing until the 2060s.

Future UK/EU relationship

This is addressed in the political declaration. The current text is not legally binding and has been revised by UK/EU negotiators.

The declaration states that both sides will work towards a Free Trade Agreement (FTA), with a high-level meeting set to take place in June 2020 to take stock of progress towards this goal. 

It also contains a new paragraph on the so-called "level playing field". This concerns the degree to which the UK will agree to stick closely to EU regulations in the future.

While specific references to a "level playing field" do not appear in the legally binding withdrawal agreement, the revised declaration states that the UK and the EU should "uphold the common high standards…. in the areas of state aid, competition, social and employment standards, environment, climate change, and relevant tax matters".

Replies (10)

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paddle steamer
By DJKL
22nd Oct 2019 15:27

The answer is that there might be a start on talks re trade arrangements which will certainly take more than 14 months to develop and in reality could go anywhere. In the meantime UK business, still with no certainties except that it will be 99% certain there will be no CU or SM membership for the mainland UK will start implementing whatever plans they have developed, cannot see them hanging around for cliff edge two (vis a vis the FTA or otherwise) to see what will happen.

HMG will need to decide what, if anything, they can do with say US and other countries pre any deal they may/may not broker with EU as what they commit to with one will impact what they can likely commit to with the other, sequencing featured in the WA/PD and will further feature in any FT agreements.

When all the dust likely settles (and frankly really cannot see EU deal in 3 years 2 months (max allowed at present with a transition extension)) I will be three years from full retirement, expect Indy ref 2 will have been run and frankly will have lost the will to live having had the period 2014 to 2022 removed from any form of meaningful life planning. Oh, and likely the house in my picture above will have been sold, no E11 so no reside in retirement part of the year abroad so no point continuing to own a property abroad- that's best part of fifteen years blown.

But, on a plus point re some certainty, wherever I in future live in the UK, from now until I die,I do know one thing; The Conservative Party will never, at any level of election, get my vote again- from 1979 onward I in the main have backed them, no more, they can frankly implode, destroy themselves, do anything they like, JC can bring under state control nearly everything he can think of but that will not sway me. I may not vote for his lot but I certainly will not vote for the Conservatives, they can promise me anything, the one thing they will never get again is my vote; so at least out of Brexit uncertainty I have formed some certainty, the Conservative Party are total *******.

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Replying to DJKL:
Caroline
By accountantccole
23rd Oct 2019 09:12

Don't give up on the dream - 90/180 rule leaves some time to travel visa free, although I suspect you are far from alone in the retirement plans being ruined :-(

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Replying to accountantccole:
paddle steamer
By DJKL
23rd Oct 2019 11:13

I actually do not see being unable to reside as the issue, it is health insurance that is the issue (whilst we can get 30 day holiday cover it is tricky and expensive for my other half to get permanent health insurance).

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Replying to DJKL:
Caroline
By accountantccole
23rd Oct 2019 14:56

Get on a boat and get out now so you have residency before B-day! Remote working is ever so much fun.

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Replying to accountantccole:
paddle steamer
By DJKL
23rd Oct 2019 15:54

That is not possible, my wife's mother lives here and although pretty active is hitting 90 later this month, it is not an option. If we had no family, no kids, I would do it, sell up, totally retire, live on pensions/investment income, but my other half will not do a permanent jump, x months a year yes, all year will not happen.

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Replying to DJKL:
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By Knight Rider
23rd Oct 2019 15:03

I am reminded of my grandfather saying he wished to retire to India but Attlee gave it away.
It is odd that you blame the conservatives. They promised a referendum and won an election on the basis of that commitment. The people voted to leave.
It was Labour that introduced mass immigration without adding the necessary infrastructure in housing, healthcare and education.
It was the EU that failed to make a case for Britain to remain and offer David Cameron anything but 'thin gruel' after his trip to Berlin.
A majority of Parliamentarians voted for a referendum and the people voted again in 2017 for parties supporting leave.
I am sorry you consider your life plans disturbed but perhaps your blame should be spread a bit more widely and thinly.

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Replying to Knight Rider:
paddle steamer
By DJKL
23rd Oct 2019 16:00

No, frankly am still awaiting a cogent economic argument in favour of Brexit, it is economic lunacy and the Conservatives can ,and will ,reap what they have sown if the economy does start to unravel.

Doubt it will be an issue ten years from now, catch is I do not have that time to wait pre retirement, I think the chance of Scotland remaining within the Union post the sorts of Brexit Boris and pals appear to be aiming at is pretty low so I likely will again become an EU citizen, just not when I want to be one.

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Replying to DJKL:
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By Knight Rider
23rd Oct 2019 22:23

The arguments in favour of Brexit are essentially political: restoring powers to Parliament and those elected and accountable to us. However economic benefits include saving the EU budget contribution, closer trading links with the rest of the world and the setting of tariffs in the interest of the UK.
I am very concerned about the United Kingdom remaining together (the most successful union of nations in the World) but take comfort in the fact that the SNP do not represent the majority in Scotland. Not all in the SNP wish to remain.
I hope that many of the reciprocal benefits of EU membership(healthcare, driving licences, security etc) can be maintained post Brexit. We will after all still be European just not members of the EU.
Unfortunately for the Conservatives if they don't achieve a meaningful Brexit they will start to unravel anyway.

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Replying to Knight Rider:
By ireallyshouldknowthisbut
25th Oct 2019 14:03

@KR, can anyone explain HOW we get better trade deals being 2% of the world economy, rather than as part of one of the 3 main trading blocks? Ie US/EU & China?

That has considerably baffled me for some time.

The only ones done so far are "roll overs" on the EU terms. Canada has told us to whistle. The US wants us to massively deregulate and privatise our healthcare as a precondition. China is likely to want a lot from us too.

Moreover, specifically what products would be be able to sell better on our own rather than piggybacking on EU's deals? I cant identify a single sector that woudl be better off. Clearly complex manufacture such as Motor and Aerospace cant really function without free trade to the EU. The way i see it services are getting stuffed big time with the City losing its prime spot to Berlin. The Education & Research sector of which we are world leaders, is really suffering now from lack of movement of staff from the US and other locations, and will get much worse with the loss of freedom of movement around Europe for everyone. Its already hitting key research projects (my wife is in this sector, and being pushed to move to the EU which we are resisting as I am not going anywhere)

Just not seen any concreted examples of what sectors are supposed to be doing well out of any of this.

if we end up in a customs union (ie keeping free trade with the EU) then we will be a rule taker to the EU, so effectively giving away control to the EU, not 'taking it back'. I appreciate the UK has a tendency to vote a load of idiots, washed up types and downright fools into the EU parliament, but we do have (or did have) significant influence there if only we took it seriously.

I just don't get what the point is.

Even the racists are going to be annoyed when they work out we are going to need lots more brown and black faces if we stop having cheap labour from the EU. So some silver lining there when the penny drops!

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Replying to ireallyshouldknowthisbut:
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By Knight Rider
27th Oct 2019 21:14

Trade deals made by the EU are in the EU's interests-not necessarily those of the UK. Tariffs on clothing and footwear are to protect Italy, those on tobacco are to protect Greece, those on cars were largely to protect Germany. Paradoxically the removal of tariffs on Japanese cars has encouraged the Japanese to exit the UK - again not in the UK's interests.
In future the UK will be able to ban live animal exports and stop imports of food products from countries not upholding the highest of animal welfare standards. Hopefully the UK will have the highest standards of food labelling and animal welfare.
The problem with negotiating trade with the EU is that the UK caved in to the EU's wholly unreasonable demand of sequencing trade talks until the withdrawal agreement was signed. A FTA should be in place on withdrawal.
Trump is an anglophile and wants a trade agreement with the UK. What is wrong with American companies bidding for contracts with the NHS in the same way as European companies? Lower costs and better choice will benefit patients and the taxpayer.
Complex trade functions all over the world outside the EU. BAe manufactures in the US,Canada as well as Europe. Tata makes cars in India and its subsidiary JLR manufactures in Europe and China. Of course we would like a tariff free arrangement with the EU but what can we do if they won't talk about it?
One of the major benefits of leaving is having a fair immigration policy that doesn't discriminate against people outside the EU. I am sure that we will see Americans, Australians and others finding it much easier to come to the UK. The restrictions on cheap foreign labour (where the employer gets the taxpayer to pick up the bill for education,health and housing) will encourage capital investment and boost productivity.
It is a shame that the Brexit party is the largest party in the EU parliament but had we left as promised this would not have happened.
Staying in the Customs Union is not Brexit and you are right - this would be worse than staying in the EU.
Perhaps if David Cameron had obtained the fundamental reform and treaty change promised we would have voted to stay. But we have voted now and I would suggest that any extension is used to try and formulate the post withdrawal trading arrangements so that the withdrawal at least in trading terms is as seamless as possible for the UK and the EU.

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