This newsletter is due for publication just a few weeks before 31 October 2019 which, at the time of writing, we are told will be the day the United Kingdom leaves the EU.
Brexit may happen without a deal, which is both the avowed wish of some of the people central to the process, and an illegal and irresponsible act of self-harm according to others. There may be an extension to this date; but this could be blocked by our own Government, perhaps by circumventing parliament, or by the EU itself. There could be a General Election, a second referendum, both, or neither. These are confusing times.
Nevertheless we are, as they say, where we are. So we will try to shed some light on what a no-deal Brexit might mean, and what business can do to prepare for this and mitigate its impact.
If there is no Brexit agreement, in the absence of any interim arrangements – which would themselves require the agreement of the EU – we will lose our current trading arrangements with both the EU and those countries with whom we currently trade on terms agreed between those countries and the EU.
We will focus on the impact of EU trade as this represents both the largest element of our foreign trade and the area in which changes will be the greatest.
At present in trading with the EU we have:
- Shared regulation
- No trading tariffs
- Open borders
- No VAT on business to business (“B2B”) trade
All of these could disappear overnight in the event of no deal.
Thus UK businesses trading in goods with the EU need to plan for potential lengthy delays in imports and exports, and price changes due to the imposition of tariffs. There is talk of the UK offering a “no tariff” arrangement to the EU, but World Trade Organisation rules may not permit this. Also if the EU declined to reciprocate it would surely be swiftly withdrawn.
The provision of services to the EU are not within the scope of the WTO. In our experience whilst there may be local tax issues in relation to the provision of services internationally, they are not subject to tariffs. How this will play out in a post-Brexit world remains to be seen.
Arrangements will also be urgently needed to deal with the shared regulations aspect, so goods may be, for a transitional period, traded between the UK and the EU under existing approvals. As has been widely reported, medicines are one area where this is critically important. The potential issues for “just in time” operations like the car industry have also been made clear.
The VAT changes on sales will simply be a question of making sales to EU countries zero rated. For imports, the government have indicated that it will not be necessary to pay input VAT at the point of import, but rather to include it in the next VAT return.
No deal is also expected to result in a further fall in the value of sterling, making imported goods more expensive, whilst also potentially making our exports more competitive. One thing seems certain. Talk of a “clean” Brexit is fanciful. In the event of us crashing out without a deal, both sides will need urgently to return to the negotiating table to arrive at one. The future prosperity of the UK and (to a lesser but significant extent) the EU demands this.