In the event of a no deal, Brexit customs duty and import VAT would apply at the point of entry into Ireland. The applicable duty would be determined by the commodity code for the particular goods in the customs tariff. Ireland will be obliged by law to charge the third country duty rate on imports from the United Kingdom. This is the default that applies where there is no particular preference under a trade agreement.
The rates of EU duty are set out and defined in the EU TARIC. The UK will publish a separate UK tariff for after exit. A temporary tariff, with many reductions below the EU rates, was published by the UK before the Brexit risk dates in 2019. It may be reinstated as it was or may be amended further.
The rates vary across commodity types considerably. Over the last 50 years, the rates have progressively decreased. Many rates are now between zero and 10%. However, some goods in particular agricultural and food products, are subject to very high rates of 30 to 50%. These high duties together with the strict animal and food health requirements at the border mean that a hard Brexit would be extremely burdensome and costly on agricultural and food businesses and they may lose considerable business.
Value Added Tax
The default position is that value-added tax is due at the point of import. For businesses, this would normally involve payment of VAT and later taking credit in the following VAT return for that purchase in the same way as with the purchase of other goods.
VAT is a national competence, unlike customs. Emergency legislation is proposed to allow traders to postpone their VAT liability to the following VAT return period after the export by way of concession for a period after Brexit.
This will greatly assist cash flow in that an importer could effectively set off its obligation in respect of import VAT against the corresponding claim for credit in respect of input VAT in much the same way as occurs at present in respect of an EU acquisition. However, a guarantee is likely to be required, eventually. A period of grace may be given for obtaining the guarantee.VAT would be chargeable by the trader on its sales in the normal way.
When goods are released for free circulation, they become liable to the relevant duties. The customs debt is thereby incurred at the time of acceptance of the customs declaration in question. The declarant is a debtor. The declarant may be the representative/ agent of the entity person under whose control the importation is taking place. The former is an agent in this case, and the importer is liable as principal.
The import declaration includes the calculation of duty. Where there are multiple commodities codes there must be a separate calculation for each. The relevant currency is to be inserted where it is not the euro and is converted into the domestic currency with reference to a pre-set Revenue rate which changes monthly as currency values change.
The customs valuation is generally based on the sale price but in principle, HMRC or Revenue might apply a different price if it believes that the pricing treatment is incorrect. Where traders have group purchases and sales, they might be looked more closely at by HMRC and Revenue, than an arms’ length sale.
The primary method of valuation is with reference to the transaction value/ invoice price. Some deductions may be permissible if they are clearly distinguished, such as cash trade and quantity discounts. Customs charges whether or not included in the price are generally included for customs duty purposes to the extent they relate to importation expenses.
The basic equation for customs duty is the tariff rate multiplied by the valuation. The tariff rate under a free trade agreement is contingent upon the origin condition being satisfied. Therefore, third-country goods may not qualify.
Goods entering the EU from the United Kingdom or dispatched from the EU to the United Kingdom will be treated as imports and exports respectively in accordance with EU derived VAT legislation. Value-added tax is applied to and added on top of the customs value. The duty together with the import VAT is calculated and becomes payable immediately unless there is a deferral account. The standard VAT deferral is until the 15th day of the following month. Generally, a guarantee is required.
Traders should consider the import and export prices in terms of corporation tax obligations, where there are transfers between connected or group companies. Where there is a group, the sales price will impact on the profits and consequent Corporation tax of the importer and exporter.
There are transfer pricing rules which adjust artificial prices so as to ensure that a corporate group does not seek artificially, locate its profits in a low tax jurisdiction. Many smaller business groups are not within the scope of the transfer pricing.Customs rules have a different focus and seek to ensure that the market value of imports is subject to customs duties rather than a lower invoiced amount.
Other Levies and Taxes
In some cases, there may be also excise duties such as alcohol, tobacco, and mineral oil tax. These duties are already applicable in relation to movements between member states and the excise control system has many of the same functions as the customs system. The EU excise movement and control system will no longer apply to s suspended movements of excise goods from the EU into the UK. They are treated as exports, and the excise supervision ends at the point of exit from the EU. The movement of excise goods to the United Kingdom will require an export declaration as well as an electronic administrative document.
There may be some remaining agricultural levies that are part of the common agricultural policy. They essentially offset cheaper imports as part of the price maintenance mechanism in the policy.
There may be anti-dumping duties and anti-subsidy levies. They arise as part of trade policies for the purpose of counteracting below-cost selling and subsidies by other governments.
Interest and penalties may be due if the declaration is late.
The importer of record who makes declaration must either pay or account for customs duty and VAT that arises. Even if there is a trade agreement with zero customs duties on the goods concerned, VAT will either have to be paid or accounted for. The standard rate of Irish VAT applicable to most goods is 23%.
Deferral or Postponement
Traders who regularly import may have a deferment account under which their obligation to pay the customs duty and VAT is deferred for a period usually until the 15th day of the following month.
he deferral account is set up with revenue and invoked in the import declaration. A guarantee is required. It must be issued by an insurer or credit institution or alternatively must be backed by cash. The amounts required for the guarantee are based on the potential liability. A Specific application must be made to Irish revenue for approval of a deferment account and the requisite guarantee must be put in place.
A more generous deferral possibly without a guarantee for a grace period may be permitted in the event of a Brexit without a negotiated agreement. This has been referred to as postponed accounting and for many importers would permit offset of the input VAT against the import duty due as the accounting date would coincide with the due date for VAT for the trader.
Customs duties are not repayable other than in exceptional circumstances. It is possible to defer customs duties for a period only where goods are put under a customs procedure. Customs procedures require that the goods remain under Revenue / HMRC control and cannot be sold or released into the market (put into free circulation). Customs duty is not like VAT in that there is no credit for customs duty paid which may be recovered by the seller from Revenue/ HMRC or offset against customs due on a subsequent sale.
Postponed VAT Accounting
Prior to the initial Brexit date of 29th of March 2019 which appeared might be the effective date of Brexit in the absence of a trade agreement, Ireland passed legislation that allows for the possibility of postponed accounting. This would allow deferral of the VAT liability date to the date when that falls due for the period concerned and not just to the 15th of the following month. This could mean that when goods are imported by a trader who charges VAT on all their sales then the import VAT due could be offset as input VAT i.e. credit for purchases so that there was no net cash flow effect.
The conditions for postponed accounting were to be set by Revenue and in the event when the effective date of Brexit was postponed, the arrangements did not commence.