What are the important dates?
On 29 March 2017, the United Kingdom formally informed the European Council of its intention to leave the EU (according to the procedure provided in Article 50 of the Lisbon Treaty). Consequently, the United Kingdom will leave the EU on 29 March 2019 at midnight (24.00 CET in the night of 29-30 March). Meanwhile, the European Court of Justice ruled that the UK may unilaterally reverse its decision to leave the EU.
After long and difficult negotiations, the UK and the EU agreed a temporary Brexit deal (the so-called Brexit divorce deal), which includes a transition period lasting until 31 December 2020. Although the UK then no longer is a member of the EU, during the transition period all the EU rules will remain applicable to it. For VAT purposes, this means that deliveries to British taxpayers remain exempt intra-EU supplies. For Belgian companies, purchases from the EU remain taxed intra-EU acquisitions. Sales to British individuals by Belgian vendors who have the goods shipped to their customers remain distance sales. In other words, the UK will be excluded from the EU immediately and become a third country only as regards the rules on decision-making and representation within the European Institutions.However, if the British parliament does not agree to the negotiated Brexit deal (‘no deal’ scenario), then the UK will leave the EU immediately and without any transition period on 29 March 2019, which means that from then on, all the rules applicable to third countries will become applicable to it. We’re heading towards a real Big Bang...In the no deal scenario, any goods traded between the UK and the EU will become subject to customs declarations as from 30 March 2019. This will result in considerable additional accounting procedures, extensive delays in the logistics chain and the imposition of import duties.
Preparing for Brexit
As a Belgian company trading with the UK, how can you prepare for this disaster scenario? Below are a few practical tips that may serve as an initial step towards a Brexit preparation plan.
- If your company has no experience with import and export with third countries (outside the EU), then make sure your staff get the necessary training and contact a customs agent who can carry out the required import and export formalities for you.
- Do you already have an Economic Operator Registration and Identification (EORI) number? Anyone importing goods from or exporting goods to non-EU countries is required to have an EORI number.
- Do you know the correct CN code for all your products?
- Do you know the origin of your products, i.e. according to the customs rules of origin?
- Are you able to provide your client with a ‘pro forma’ invoice for their customs clearance at their request?
- You must modify your VAT reporting system such that British customers and suppliers are no longer identified as ‘intra-Community’. Make sure that the required modifications are performed correctly. A credit note issued to a British customer on 20 April for a discount relating to a delivery made on 15 March, will still be an intra-Community credit note! Furthermore, don’t forget to chart the impact on other invoice streams. For instance: the VAT scheme relating to invoices of carrier companies transporting your goods to the UK will change also. Bookkeepers and IT staff will have a hard time making sure that all the changes are implemented at 0:00h in the night of 29-30 March (i.e. within the current month!). It would seem a good idea not to send any invoices to British customers on 30 and 31 March.
- If you have incurred VAT that can be recovered through the European Directive for VAT Refunds, you should act on it as soon as possible, as in the event of a no-deal Brexit, starting 30 March 2019, the Directive will no longer apply to British VAT refunds.
- Check under which Incoterms you are selling goods to British customers and adjust them as necessary for any quotes you will be sending out as from today. Adjust your quotes for additional costs to be incurred post-Brexit, such as export or import formalities and customs duties.
- Allow for considerably longer delivery periods to the United Kingdom. If necessary, include additional resolutive conditions for perishable goods in your terms and conditions.
- Check whether invoicing in British currency is the best option: a no-deal Brexit may produce considerable currency fluctuations.
- Expect larger than normal orders from your British customers in the months leading up to Brexit: the British government is encouraging British companies to make sure that they have additional supplies over and above their usual buffer stocks prior to Brexit.
- Check the impact of the customs duties to be imposed – is your product in its current format still sellable in the UK after the imposition of import duties? Have you checked the import duties that may become due based on the WTO tariffs?
- Supplies including installation in the UK must be reassessed for VAT and customs duties.
- Sales from a British call-off stock and purchases in consignment from British suppliers must be reassessed for VAT and customs duties.
- Cross-border contract work involving the UK must be reassessed for VAT and customs duties.
- If your business involves regular imports from the UK, you may want to consider applying for a VAT deferral licence, the so-called ET 14000 licence. If you have no other imports, your application may be based on forecasts.
- Triangular traffic (ABC transactions) involving the transportation of goods to or from the UK must be reassessed for VAT and customs duties.
- Web shops selling products to British individuals must review their VAT processing.
- Moving excise goods between the UK and EU countries will no longer be possible under the Excise Movement and Control System (EMCS).
- Companies selling digital services to British individuals may no longer use the Mini One Stop Shop (MOSS) scheme to declare VAT.
This is no more than an initial guide. Each company will have to assess the consequences of Brexit to their specific activity and prepare a Brexit plan.
What if a Brexit deal is reached after all?
Then there definitely will be a transition period which will run at least until the end of 2020, but which could be extended after that. Such a transition period would be a good thing for the EU, but many British politicians are against a longer transition period. The intention would be to reach an agreement on the future trade relations between the UK and the EU during the transition period. The negotiations about the conditions of such free trade agreement have yet to start.Failure to reach an EU-UK agreement will trigger the ‘backstop’, under which Northern Ireland will remain aligned with the EU single market, while the remainder of the UK will be coupled to Northern Ireland (hence also to the EU) via a customs union. This would avoid the creation of an EU external border between Ireland and Northern Ireland. In this scenario, customs formalities would still have to be fulfilled in goods transactions with the UK, but no customs duties would be due.
Anyone who has regular transactions involving British suppliers or customers must place Brexit at the top of their list of priorities and prepare a concrete Brexit plan.