Brexit - VAT & Customs
Critical issues for businesses to consider:
- Impact on the Supply Chain: Review and map the movement of goods into and out of the UK to understand the potential for disruption to supply chains caused by Brexit and actions to mitigate disruption. Both tariff and non-tariff perspectives should be reviewed.
- Customs Duty: Customs Duty is not recoverable and is an additional cost for business. Customs Duty should apply to the import of goods into Ireland from the UK and vice versa. The applicable rate of Customs Duty needs to be clarified from a budgetary perspective. The average rate of Customs Duty is currently approximately 9%.
- Customs Clearance: Whilst most of the headlines will be around Customs Duty, a non-tariff cost is the length of time and the cost of getting goods physically cleared at the relevant borders and filing of the relevant Customs declarations. Customs declarations will be required to physically move goods into Ireland/the UK and vice versa.
- VAT on Importation: The “Omnibus Bill” proposes a temporary measure allowing for the postponed accounting for VAT on importation. Under the temporary measure, businesses would no longer pay VAT at importation but account for VAT through the relevant VAT return resulting a significant cash flow saving. However, should this measure not become permanent, VAT at the standard rate (23% Ireland, 20% the UK) should apply to the importation of the majority of goods. While this VAT should be recoverable, businesses will need to quantify the cash flow impact of having to pay and fund import VAT in the period before they can recover same through the relevant VAT return.
- VAT and Customs Relief: Consider whether any reliefs can be availed of which can delay or reduce the VAT and Customs impact. Such reliefs include the use of a “VAT Deferment account” or “Inward processing relief”, etc.
- Contracts: Commercially all contracts need to be reviewed to understand and quantify the impact a No Deal Brexit could have and also which party will be responsible for Customs clearance, payment of VAT/Customs Duty, etc.
- ERP System Impact: Businesses should assess what changes will be required to their ERP/financial systems and the cost of same to take account of VAT and Customs Duty requirements in the face of a No Deal scenario.