Q&AJul 4 2018

How will Brexit affect manufacturing firms?

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How will Brexit affect manufacturing firms?

Q. My client has a small manufacturing business and all of his trade is with the EU. With Brexit on the horizon, how will this affect the business?

A. Unless all member states agree to an extension, the UK leaves the EU on 30 March 2019. The UK intends to leave the EU Customs Union, meaning the reintroduction of a UK-EU Customs border.

A negotiated outcome of a Free Trade Agreement with no customs duties imposed is still the most likely scenario. 

But the prospect of no deal, or a very limited deal between the UK and the EU, is a real political possibility, resulting in the UK falling back on World Trade Organisation (WTO) rules in 2019 – a ‘hard’ Brexit.

As part of the European Community (EC) we are part of a single trading group and goods produced in the community can move freely and seamlessly throughout all member states.

In addition to VAT returns, a business submits EC sales lists to show the sales it has made to each of its VAT-registered customers in other member states. It may also be required, dependent on thresholds, to submit Intrastat Supplementary Statistical Declarations, advising the value of goods that it has despatched to or acquired from other EU member states. 

There are no border controls or documentary checks to delay shipments. 

Although we do not have a crystal ball, post-Brexit there is likely to be a transitional period, after which the UK will be treated in the same way as any other non-EU country, with export and import declarations replacing the current statistical declarations.

There may be additional documentation and licensing requirements to meet security regulations, and health and safety standards that are checked at the border. 

Goods arriving at the border can be subject to anything from document checks, to inspection, to testing of samples, which can lead to delays.

As a result, businesses may need to build in additional delivery time to alleviate the effect of these controls. It is worth noting that businesses are also charged for checks. A physical examination of goods from port health authorities can cost a trader anywhere between £106 and £600 per container.

Sales to EU member states can still be zero-rated – albeit as exports – provided evidence the goods have left the country within three months is retained.

A corresponding import entry will be required when the goods enter the EU, on which import duty and VAT will be due. 

Similarly, when goods are received from the EU an import declaration will be required, with VAT due at the time of clearance, unless deferment is authorised. This could cause cash flow difficulties.