HMRC letter warns of no-deal Brexit fallout

  1. Brexit
    Francois Badenhorst

    Francois Badenhorst Business Editor, UKBF & AWEB Staff Member

    91 18
    10 |

    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.”

  2. The Byre

    The Byre UKBF Ace Free Member

    9,126 3,590
    I have not received a copy of that letter. I shall keep a candle burning in the window for its arrival!

    All change brings with it friction costs. That greater the change, the greater the friction. The faster the chance, the greater the friction. The speed of change effects every part of the friction costs of that change - I call that the 'Yellow car effect.'

    Imagine that we have an absolute dictatorship and the dictator decides that the safest colour for any and all vehicles is bright yellow. If the dictator allows the change to take place gradually, say over the next 25 years, the friction costs will be almost nil. New cars will have to be yellow, but old cars, trucks, busses, ambulances and trains have 25 years to get a respray and have that new colour registered in their documentation.

    Now imagine what would happen, if our dictator insists on all vehicles of any type has to be coloured yellow and that colour must be entered into the registration documents by 6am tomorrow - on pain of death!

    All trains, busses, trucks and cars (that do not happen to be yellow already!) would not be able to go about their daily routines. The economy would collapse and we would be reduced to a subsistence society using barter to survive!

    Let me put the problem for businesses another way - if we crash out of the EU with no deal, no amount of preparation that I may engage in for my business can help. If we get a slow and well-thought-out steady transition deal, I do not need to prepare for any sudden and violent change.

    Most importantly - prepare for what exactly?
    Posted: Sep 20, 2018 By: The Byre Member since: Aug 13, 2013
  3. ThePropertyServices

    ThePropertyServices UKBF Newcomer Free Member

    15 3
    I believe there has been plenty of time for them to prepare and avoid a hard exit, no small business should suffer the consequences of something that was requested for only half of the people, most of them uniformed individuals. By the end of November, the very best thing to do for small businesses, is to allow a second vote for what the government was able to achieve, again, there has been plenty of time.
    Posted: Sep 21, 2018 By: ThePropertyServices Member since: Mar 21, 2018
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  4. Blood Lust

    Blood Lust UKBF Enthusiast Free Member

    886 115
    Are we allowed to criticise the idea of a No Deal Brexit being a bad thing? Putting aside all the biases present within the media, politics, and from the Bank of England, then in economics many take the position that free trade agreements actually harm economies.

    Basically we only want those businesses and industries in the UK that have a comparative advantage over foreign rivals. Otherwise our consumers end up paying more than they need too and there is a reduced pressure on our companies to innovate. If you protect the companies inside a trade block from outside competition (no barriers inside, but barriers outside) then those firms inside become less competitive. They dont need to be on the ball when it come to having a cost or innovation advantage over outside rivals. Because they are protected from outside rivals by those barriers. So overtime they lose their edge both in the prices they offer consumers and innovation.

    On top of that our financial sector isn't going to implode. Why? Its an expert knowledge based industry. Expert knowledge isn't a comparative advantage that can simply be acquired overnight. It takes decades starting with foreign countries getting more of their youngsters interested in finance while they are at school.

    Now I`m not saying there wont be any short-term instability because their will be. With all the lies and distortions scaring people the markets will be disrupted for a while. Also there will be some firms you are foolish enough not to have already prepared (having what will be almost two years to get ready). There will also be those that are trapped preventing them adapting. But likewise Brexit will also go in favour for many of our businesses.
    Posted: Sep 21, 2018 By: Blood Lust Member since: Sep 7, 2011
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  5. 19ninety

    19ninety UKBF Regular Free Member

    185 17
    I wonder how much time and money has been wasted up until now because of Brexit and how much more could have been achieved with those resources...
    Posted: Sep 21, 2018 By: 19ninety Member since: Nov 22, 2015
  6. KateCB

    KateCB UKBF Ace Free Member

    2,258 534
    I admit to being totally confused. I haven't had this letter either, however from what Francois says, I will need a nominated company to deal with my VAT liabilities in other European countries - why? I sell both into Europe and outside of Europe and don't need anything in place outside of europe. My outside of europe suppliers don't have anything here to deal with their VAT liability ( I have asked) and we have all traded without problem for the past 19 years.

    i do understand that things will be different of course, but as i charge the UK VAT rate on anything I sell to anywhere I sell it, and the customer is liable for taxes and charges in the country of delivery, i honestly don't understand what will change.
    After speaking with my uncle, who has been in business internationally since 1948, he says that when VAT first descended, he never had to have people or agencies or companies to handle VAT in these countries; like me, he sold including VAT here and the liability for anything else was his customers at their end.
    What am I missing?
    Posted: Sep 21, 2018 By: KateCB Member since: May 11, 2006
  7. Mixture

    Mixture UKBF Regular Free Member

    108 18
    Why do you charge and pay UK Vat on sales you make outside of Europe? You shouldn't pay any UK VAT on any sales outside of the EU.
    Posted: Sep 21, 2018 By: Mixture Member since: Jan 12, 2012
  8. The Byre

    The Byre UKBF Ace Free Member

    9,126 3,590
    1. I am an economist by training and I must admit that the only 'many' that I have heard are politicians, some claiming to quote economists - but I have not heard a single person with a formal education in economics claim that a proper free trade agreement will harm an economy.

    Were that to be the case, the whole foundation of the teachings of Ricardo (Division of Labour) and Smith (Wealth of Nations) would have to be false. Unless you are the ultimate polymath who is as good at plumbing, as he is at quantum mechanics, farming, cooking and computer programming, you might want to revisit that idea!

    2. A sudden no-deal Brexit is like my sudden yellow car law. Sudden change is ALWAYS bad for the prosperity of a nation or a region and because of the lack of means to cope with sudden change, the poor suffer greatest.

    3. HOWEVER that does not mean that a slow and gradual distancing of the UK from the EU would not be possible. A measured pathway over, say, 25 years would be perfectly possible - and, because it would be under constant review of the government of the day, far more acceptable from a democratic, as well as a social and economic point of view.

    4. Unfortunately, both sides of this pointless Brexit debate are bogged down in ideologies and dogma. We keep hearing nonsense about 'freedom' and freedoms', followed by 'red-lines', 'ultimatums' and 'a people's vote', all of which seem to be a collection of dog-whistle shibboleths by the dogmatic on both sides - and TBH, most thinking people are sick of the whole thing!

    5. The underlying issue for ALL OF US is the degeneration of politics and the extremely poor quality of leadership of all parties in Westminster. (And I am including the party of which I am a member and whose leader is an acquaintance of mine - a very nice and capable person, but not a good leader and not the best person for the job!)

    Of course, this is not a sudden and unexpected development. Politics has been falling into the hands of the dogmatically driven incompetent since the War. I could at this point, give a long, protracted, point-by-point history lesson, starting with the idiotic post-war Labour government and its mad policies such as the 50% luxury tax on cars, to the nationalisation of anything they could lay their hands on under Attlee, through to the blithering incompetence of Wilson, Heath and Callaghan, the madness of Thatcherism, the dithering of Major, the profligacy of Blair and the economic illiteracy of Cameron.

    And now we have the worst of all worlds - a leader totally incapable of leading, heading a party that is riven with dispute and division and only able to summon a majority in the House, with the aid of a motley collection of dangerously bigoted, religious lunatics. And that dire situation is one she managed to get into all by herself. If ever an opposition had a soft target, the May administration (or rather the almost total lack of an administration) offers the very softest target imaginable.

    The Labour Party had a potential natural leader in David Milliband - so it picked his goofy younger brother - a man who was incapable of standing on his hind legs and speaking clearly and could not even eat a sandwich without making a fool of himself! When that disaster fell at every hurdle, it picked the most unbelievably ridiculous back-bencher it had: a bearded madman, muttering incoherent nonsense from the Marxist-Leninist hymnbook.

    The UK political system is like a ship heading for the rocks, with rival factions of officers fighting themselves over control of the wheelhouse - blissfully unaware that the rudder is no longer connected to the wheel!

    And we, the electorate, are the passengers!
    Posted: Sep 22, 2018 By: The Byre Member since: Aug 13, 2013
  9. marcus_bond

    marcus_bond UKBF Newcomer Free Member

    22 7
    Not that I'm expecting a no deal in my wildest dreams. Most of my companies trade is within the UK, or with the rest of the world, we trade very little with the EU. Might mean we trade even less with them, the extra duty, and our agents costs for processing VAT & Duty will make supplies from the EU much less attractive. We don't supply much to the EU, so it really doesn't affect us. A slow disentanglement, by extending brexit uncertainty is my worst scenario. Businesses just want an end to the uncertainty, then we can get on and adapt and invest.

    UK is in a hard place, aging population, dwindling domestic energy supplies, and an enormous IT & Communication revolution which is proving very disruptive.
    Posted: Sep 23, 2018 By: marcus_bond Member since: Nov 12, 2017
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  10. Steven001

    Steven001 UKBF Regular Full Member

    162 9
    I think the biggest fear is another general election because Mrs May is incessantly pushing her idiotic Chequers deal who no one including those who voted remain want.
    Posted: Sep 23, 2018 By: Steven001 Member since: Aug 1, 2018
  11. quikshop

    quikshop UKBF Big Shot Free Member

    3,706 720
    Change? Friction? For the vast majority of citizens and businesses there will be no material change to their lives or circumstances. For most the biggest impact will be a modest surcharge on top of their holiday budget to Costa Del Sol, although they won't be flying Ryanair because O'Leary has thrown his toys out of his pram.

    The impact of business tariffs through the WTO have been offset by the fall in the value of the pound, and no European business will be happy with increased costs of doing business in the World's 6th largest economy.

    For those of you aware of the original European empire plans, it was accepted that Britain stood independent of Europe as one of five World powers. It all appears to be going to plan.
    Posted: Sep 25, 2018 By: quikshop Member since: Oct 11, 2006