Feb 2019 Update to Dec 2019 Note
If the UK exits the EU without a deal, UK businesses will have to apply customs, excise and VAT procedures to goods traded with the EU, in broadly the same way that already applies for goods traded outside of the EU.
The UK intends to establish an independent trade remedies system by the time the UK exits the EU. There will also be implications for a range of specific goods regulated under EU legislation.
The detail is set out in the technical notices on GOV.UK. Here are the important changes to expect:
Customs and excise
Businesses can currently move goods freely between EU countries. For customs, this means that businesses trading with the rest of EU do not have to make any customs import or export declarations, and their trade with the EU is not subject to import duty.
Certain goods are subject to excise duty. This is a tax charged on the production and importation of alcohol, tobacco and oils. These goods are currently free to move between the UK and the rest of the EU with the excise duty suspended.
If the UK left the EU on 29 March 2019 (may also apply to new exit date on 31 December 2020) without a deal, there would be immediate changes to the procedures that apply to businesses trading with the EU. It would mean that the free circulation and movements of goods between the UK and EU would end.
HMRC is currently introducing its new Customs Declaration Service (CDS), which replaces its Customs Handling of Import and Export Freight (CHIEF) system. You can read more information about how CDS is being introduced and what businesses need to do to prepare.
From 11pm on 29 March 2019 (may also apply to new exit date on 31 December 2020), for businesses trading with the EU, the impacts would include businesses having to apply the same customs and excise rules to goods moving between the UK and the EU as are currently applied in cases where goods move between the UK and a country outside the EU.
This means customs declarations would be needed when goods enter the UK (an import declaration), or when they leave the UK (an export declaration).
For imports into the UK, a separate safety and security declaration needs to be made by the carrier of the goods (this is usually the haulier, airline, freight train operator or shipping line, depending on the mode of transport used to import goods).
For exports from the UK, the export declaration includes the safety and security declaration.
The impacts would also include the EU applying customs and excise rules to goods it receives from the UK, in the same way it does for goods it receives from outside the EU. This means that the EU would require customs declarations on goods coming from, or going to, the UK, as well as requiring separate safety and security declarations for imports into the EU.
For movements of excise goods, the Excise Movement and Control System (EMCS) would no longer be used to control duty-suspended movements between the EU and the UK.
However, EMCS would continue to be used to control the movement of duty-suspended excise goods within the UK, including movements to and from UK ports, airports and the Channel Tunnel.
This will mean that, immediately on importation to the UK, businesses moving excise goods from the EU, including those in duty suspension, will have make a customs declaration and the goods placed either into a customs or excise suspensive arrangement or the duty must be paid at that point.
UK Trade Tariff
Under current rules, for goods moving between EU countries, there are no customs duties, and no routine intervention during the movement of goods.
For goods entering the EU’s Customs Territory from the rest of the world (third country goods), an import declaration is required, customs formalities and checks are carried out – for example for compliance with EU regulations – and any customs duties must be paid.
After any duties have been paid on third country goods, and any other formalities complied with, those goods can move freely between EU countries (they are in ‘free circulation’) and are no longer subject to routine controls.
However, in the event of a no deal exit, goods traded between the UK from the EU after 11pm on 29 March 2019 (may also apply to new exit date on 31 December 2020) will be subject to the same requirements as third country goods, including where required the payment of duty.
The actual duty rates that will apply to each item imported into the UK may be different to the rates currently applied under the EU’s Common Customs Tariff (CCT).
For UK exports arriving at the EU border, the EU will require payment of customs duty at the rate under the EU’s CCT.
In preparing for a no deal scenario, businesses should be aware of the following:
- the Taxation (Cross-Border Trade) Act 2018 will provide the necessary powers for the UK to set its own tariff for UK imports when it leaves the EU
- trade with the EU will be on non-preferential, World Trade Organization (WTO) terms. This means that the EU’s Most Favoured Nation (MFN) tariffs and non-preferential rules of origin would apply to consignments between the UK and EU
- the EU will apply its MFN rates to goods imported into the EU from the UK. The EU MFN rates are set out in the CCT, where they are listed as ‘erga omnes’ (which means ‘towards all’), rather than stating a specific country. The EU may change these rates between now and March 2019, but this provides an indication
- the Taxation (Cross-Border Trade) Act 2018 enables the UK to put in place a UK trade preferences scheme for developing countries; the UK intends to provide the same level of access to developing countries as the current EU trade preference scheme
- the UK intends to continue our existing EU Free Trade Agreements as now. Maintaining these benefits is of clear importance to businesses, consumers and investors, and will ensure a smooth transition for users of these provisions as we leave the EU.
- the UK does not plan any immediate deviation from the current commodity code list published in the UK Trade Tariff, which is currently applied by the EU, except where necessary to maintain alignment or for trade remedies purposes (see information below about trade remedies in a no deal scenario)
In the event of no deal, ahead of March 2019, the UK Trade Tariff, detailing the import duty rates and rules that will be applicable to each type of good, will be made available, free on GOV.UK as it is now.
However, importers of goods into the UK will no longer be able to rely on EU Tariff information published on the EU TARIC portal – the integrated Tariff of the European Union.
VAT for businesses
The UK will continue to have a VAT system after it leaves the EU. The revenue that VAT provides is vital for funding public services and the VAT rules relating to UK domestic transactions will continue to apply to businesses as they do now.
If the UK leaves the EU on 29 March 2019 (may also apply to new exit date on 31 December 2020) without a deal, the government’s aim will be to keep VAT procedures as close as possible to what they are now. This will provide continuity and certainty for businesses.
However, there will be some specific changes to the VAT rules and procedures that apply to transactions between the UK and EU countries.
The government has taken decisions and actions where necessary in order to mitigate the impacts of these changes for businesses.
In the VAT for businesses technical note, the government has announced that in a no deal scenario it will introduce postponed accounting for import VAT on goods brought into the UK.
This means that UK VAT registered businesses importing goods to the UK will be able to account for import VAT on their VAT return, rather than paying import VAT on or soon after the time that the goods arrive at the UK border. This will apply both to imports from the EU and non-EU countries.
In reaching this decision, the government has taken account of the views of businesses and sought to mitigate any adverse cash-flow impacts keeping VAT processes as close as possible to what they are now.
However, postponed accounting will not be introduced for parcel consignments valued up to and including £135, which do not contain excise goods and are customs-declared for release to free circulation.
If the UK leaves the EU without an agreement, VAT will be payable on goods entering the UK as parcels sent by overseas businesses.
Parcels are consignments that are defined in law as postal packets, which includes letters, parcels, packets or any other article that could be sent by post even if they are sent by different means.
The government set out in the Customs Bill White Paper (published October 2017) that Low Value Consignment Relief (LVCR) – a relief from UK import VAT on goods valued at £15 or less – will not be extended to goods entering the UK from the EU.
This note confirms that if the UK leaves the EU without an agreement then LVCR will no longer apply to any parcel consignments arriving in the UK. This aligns the UK with the global direction of travel on LVCR. This means that all goods entering the UK as parcel consignments sent by overseas businesses will be liable for VAT (unless they are already relieved from VAT under domestic rules, for example zero-rated children’s clothing).
For parcel consignments valued up to and including £135, which do not contain excise goods and are customs-declared for release to free circulation, a technology-based solution will allow VAT to be collected from the overseas business selling the goods into the UK.
If the UK leaves the EU without an agreement, the UK will stop being part of EU-wide VAT IT systems such as the VAT Mini One Stop Shop. Details for specific EU-wide VAT IT systems are set out in the VAT for business technical notice.
The government intends to establish an independent trade remedies system by the time the UK exits the EU which will be operated by the UK Trade Remedies Authority (TRA), a new arm’s length body to investigate complaints of unfair trading practices and unforeseen surges in imports, which cause injury to UK industry.
Trade remedies allow WTO members to operate a safety net and protect domestic industry from injury caused by unfair trading practices, such as dumped or subsidised imports, or from injury caused by unforeseen surges in imports. These usually take the form of additional duties on those imports.
As members of the EU, we have supported UK industries to secure necessary protections through the EU trade remedies system. Currently, complaints of unfair trade practices or unforeseen surges in imports are investigated by the European Commission (DG Trade), and any trade remedy measures are applied at an EU-wide level, rather than just in the UK.
Producers currently submit applications for investigations to the European Commission. Investigations are only undertaken if there is sufficient evidence of injury to EU producers. Specifically, applications need to show sufficient evidence that:
- there are dumped or subsidised goods or an unforeseen surge in imports that is causing injury to a domestic industry
- the WTO standing requirements in relation to import volumes and injury are satisfied
- the complaint is made on behalf of EU industry, that is producers representing at least 25 per cent of total EU production of the particular goods are being affected
As we prepare to operate an independent trade policy outside the EU, we are creating a trade remedies system which meets the needs of the UK. We are also prioritising certainty and continuity for business by maintaining EU measures which matter to the UK.
In a no deal scenario, the TRA will be operational by the time the UK leaves the EU and UK business will need to approach the TRA instead of the European Commission, with complaints relating to trade remedies.
We recognise the crucial role which UK manufacturers and producers play in our economy. We are committed to ensuring that UK industry has the protections it needs against unfair trading practices and unforeseen surges in imports which cause injury, but we will also ensure that the impact on consumers and end users is taken into account by applying proportionate measures.
We are legislating for the full suite of tools permitted under the WTO in order to tackle injury to UK industry caused by these practices. The Trade Bill will establish the TRA as a new non-departmental public body, while the Taxation (Cross-border Trade) Act 2018 sets out the trade remedies framework that the TRA will be responsible for delivering.
For more information about trade remedies if the UK leaves the EU without a deal, read the government’s Trade remedies technical notice.
Trading goods regulated under the ‘New Approach’
This information explains the arrangements that will apply in the event of a no deal scenario for the regulation of most goods covered by the ‘New Approach’. This includes those regulated under the ‘New Legislative Framework’ as well as machinery.
The areas covered by these arrangements are:
Accreditation and market surveillance – Regulation (EC) 765/2008
Toy safety – Directive 2009/48/EU
Restriction of hazardous substances in electrical and electronic equipment – Directive 2011/65/EU
Construction products – Regulation (EU) 305/2011
Pyrotechnic articles – Directive 2013/29/EU
Recreational craft and personal watercraft – Directive 2013/53/EU
Civil explosives – Directive 2014/28/EU
Simple pressure vessels – Directive 2014/29/EU
Electromagnetic compatibility – Directive 2014/30/EU
Non-automatic weighing instruments – Directive 2014/31/EU
Measuring instruments – Directive 2014/32/EU
Radio equipment – Directive 2014/53/EU
Low Voltage – Directive 2014/35/EU
Pressure equipment – Directive 2014/68/EU
Marine equipment – Directive 2014/90/EU
Personal protective equipment – Regulation (EU) 2016/425
Gas appliances – Regulation (EU) 2016/426
Machinery – Directive 2006/42/EC
Noise emission in the environment by equipment for use outdoors – Directive 2000/14/EC
Ecodesign – Directive 2009/125/EC
EU legislation sets out the rules, or ‘essential (safety) requirements’, which certain products must meet before they are placed on the EU market.
For some of these product areas, manufacturers can choose to demonstrate compliance with the essential requirements set out in legislation by following ‘harmonised standards’. Harmonised standards that can be used to demonstrate that a product meets essential requirements are published in the Official Journal of the European Union.
For construction products, use of the harmonised standards is mandatory.
The relevant EU legislation sets out how products within its scope can be tested to prove that they conform to the essential requirements. Typical ways of showing conformity include:
- self-declaration by the manufacturer that they have taken appropriate steps to ensure their product is compliant (for example, for most toys)
- assessment of the final product by an EU-accredited body (known as a ‘notified body’. A notified body is an organisation designated by an EU country to assess the conformity of certain products before being placed on the market)
- assessment of a product’s design (or a prototype) by a notified body, followed by testing of either a sample of the final product or quality assurance of production processes
For many products, a manufacturer must affix a ‘conformity marking’, most commonly the CE marking (CE marking is defined in EU law as ‘a marking by which the manufacturer indicates that the product is in conformity with the applicable requirements set out in EU harmonisation legislation providing for its affixing’). This acts as a declaration that the product complies with the relevant requirements.
For marine equipment, the Wheel Mark (Mark of Conformity) is the European regulatory marking, as defined in the Marine Equipment Directive, 2014/90/EU).
Where EU rules require third party testing, that notified body’s 4-digit identification number (as listed on the ‘New Approach’ Notified and Designated Organisations database, known as NANDO) must also be affixed to the product.
Notified bodies are usually given the right to carry out conformity assessment following assessment by a national accreditation body (in the UK, the United Kingdom Accreditation Service). They are then formally ‘notified’ to the European Commission and other EU countries by the relevant public body and listed on the NANDO database.
How processes will change
Goods already placed on the market will be able to continue to circulate in the UK. Additionally, goods that meet EU requirements (and were tested by an EU recognised conformity assessment body) can still be placed on the UK market. This is intended to be a time-limited measure.
The results of conformity assessment carried out by UK-notified bodies will no longer be recognised in the EU.
This means that products tested by a UK-notified body will no longer be able to be placed on the EU market without retesting and re-marking by an EU-recognised conformity assessment body.
For the areas covered, notified bodies based in the UK will be granted new UK ‘approved body’ status and listed on a new UK database. Approved bodies will be able to assess products for the UK market against UK essential requirements (which, immediately after exit day in a no deal scenario, will be identical to EU essential requirements).
Manufacturers selling goods on the UK market will then be able to affix a new UK conformity marking before placing a product on the UK market. A separate UK marking to replace the wheel mark will be in place for marine equipment.
Manufacturers will not need to use these markings from the point of exit in a no deal scenario if they have used the relevant EU marking after having their product assessed by an EU recognised body. This will be a time-limited arrangement.
The United Kingdom Accreditation Service’s role as the UK’s national accreditation body, including for most UK conformity assessment bodies, will remain as it is now.
Existing harmonised standards (used to demonstrate conformity with EU essential requirements) will become UK ‘designated standards’, used to demonstrate conformity with UK essential requirements. As noted above, immediately following exit these will be identical to EU essential requirements.
What this means for manufacturers
If you are a manufacturer intending to place products on the UK market on or after 29 March 2019 (may also apply to new exit date on 31 December 2020), you should note that:
- products that meet EU requirements can continue to be placed on the UK market without any need for retesting or re-marking, including where they have demonstrated compliance with EU requirements after exit day. This will apply for a time-limited period and sufficient notice will be given to businesses before that period ends
- products that meet UK requirements and bear a UK conformity marking can be placed on the UK market, as long as any third-party testing required has been carried out by a UK-recognised conformity assessment body
- for product areas covered by this notice, UK-based notified bodies will become UK approved bodies after March 2019 and will be listed on a new UK database.
If you are a manufacturer placing products on the EU market on or after 29 March 2019 (may also apply to new exit date on 31 December 2020), you should note that:
- products that were tested by a UK-based notified body will need to be retested by an EU-recognised conformity assessment body before placing on the EU internal market. A list of EU-recognised conformity assessment bodies can be found on the NANDO database. After March 2019, in a no deal scenario UK-based bodies will no longer be listed on this database
- alternatively, manufacturers can seek to arrange for their files to be transferred to an EU-recognised notified body to allow for certificates of conformity issued by a UK-based notified body to continue to be valid
- in either of the scenarios above, products where third-party testing is required would need to be re-marked with the new EU-recognised notified body’s 4-digit number
The government will provide further information setting out the practical arrangements for how UK-based notified bodies will be granted status as UK-approved bodies and on the new UK markings.
Where the government makes changes to any of the above arrangements, for example, regarding the ongoing recognition of conformity assessment activities carried out by EU bodies – it will ensure businesses are provided with adequate notice.