Hard Brexit

Overview

• Still the default option
• Both under EU and UK law
• Due to take effect on 31st December 2020
• Parliament seems opposed
• EU seems determined to avoid
• Involves a sudden big bang one time changes
• Numerous laws and trading rules change overnight
• Immediate customs duties
• Immediate customs processes and obligations
• Immediate regulatory controls
• Immediate cessation of single market rights
• Unpredictable unwinding and knock-on effects
• Negative economic effects very likely

“Hard Brexit” / No Deal

Hard Brexit is intended to refer to the UK leaving the EU without a deal on 31 December 2020 or perhaps after an extension. It would be in the nature of a very big bang. There would be a sudden rupture of the basic legal fabric of the EU and UK with multiple effects each having further unpredictable knock-on secondary and further effects.

It may be that even in this situation some steps will be taken to mitigate the very worst consequences by side agreements on specific issues by the EU and UK. The UK governments published over 250 No Deal notes which are available on the Department for Exiting the EU’s website or on our Brexit Issues site. The European Union has also published a similar number of Preparedness Notices which are available on the EU Commission website or on our Brexit Issues site.

Unilateral steps may be taken by each much as happened to a significant extent already, reflected in both the EU and UK “no-deal” notices. On the other hand, there is also the scenario of a trade war, in which steps which could be taken to facilitate business in particular sectors are not undertaken or are held back from being undertaken as part of the tactics of each side in seeking to reach its desired outcome. For all practical purposes, a hard Brexit even with mitigations, is likely to be severe.

Customs Duties and Procedures

If the UK left the EU without a transition period and without a fully agreed new trading relationship then there would be both customs and regulatory checks on all goods imported from EU to the UK and exported from the UK to the EU. Customs duties would be payable on most goods. The UK has published a temporary tariff which waives duties on many goods.

For every import from the EU, the exporter would need to make an export declaration in the European Union and give prior notice of the dispatch of the goods. The importer would have to give prior notice of arrival to the UK customs authority HMRC, make am import declaration in relation to the goods and pay any applicable customs duties. Equally the exporter to the EU would have to do the reverse with a prior export declaration to HMRC and a declaration and import customs duties in the state of import.

VAT

Value-added tax would be payable at the point of import into the EU (together with any customs duties in most circumstances). UK VAT would apply at the point of importation into the UK. This obligation would apply both to businesses including businesses below the VAT threshold and private persons in each EU state, in the absence of some relieving measures.

Some states facilitate postponement of VAT liability for businesses where they are buying goods for use in further sales which will be ultimately subject to VAT. This would relieve them from paying VAT on import and in reclaiming it in the next VAT return.

However, a business which could not reclaim VAT, a business which is  below the VAT threshold and private individuals will be obliged to pay VAT in the relevant EU state, as part of the import process in the same way as customs duties

Export / Import Control

Some goods are subject to licensing and export/import control. This applies even at present in trade between the EU and other countries in some exceptional circumstances.

Most licensing and control, such as that in relation to sanction goods, some agricultural goods, chemicals and others are subject to EU wide requirements so that they do not apply on trade within the EU. Accordingly, those areas  would be subject to licensing and control on EU trade post-Brexit

See the following section on the stringent controls that apply to movements in agricultural products and food. Apart from certain goods that are subject to licensing, general UK and EU regulatory laws on non-food goods standards are routinely enforced at a customs border.

At present, while customs works efficiently with non-EU countries only,  a lot of the focus of the EU customs and revenue authorities is on compliance and conformity issues of this type, in trade from and to outside the European Union. Based on the information declared to HMRC or the other EU country’s customs authority, checks may be required for compliance the legal standards for the goods concerned.

Agriculture and Food

Some products such as foodstuff animals and plants are subject to more rigourous and systematic control in almost all circumstances when they enter the EU. Some lesser controls already exist even in trade within the EU at present from a food safety perspective.

After Brexit, all animal, vegetable and foodstuffs will become subject to a significantly more rigourous regime of checks unless some relieving measures are agreed between the EU and UK.

Imports and exports from the EU are also subject to control for the purpose of maintenance of the residual elements of price support still remaining under the Common Agricultural Policy. Import are subject to levies in some cases and exports are subject to subsidies all of which are collected through the customs procedure.

Mitigation

It would be reasonable to assume that some steps will be taken to legislate to mitigate its worst effects. However, this assumes a willingness on the part of both the UK and the EU to do so.

The EU and UK may sleepwalk into a quasi-trade war in which even the steps which could be taken to mitigate the worst effects of Brexit are not taken as a means of forcing the hand of the other party.

There are several other possibilities. A  slimmed-down trade agreement might be agreed “kicking the can down the road” in relation to the more controversial aspects which cannot be agreed.A further possibility is a Brexit  but with dozens of measures to mitigate some of the more significant effects of a hard Brexit.