Consequences Brexit: more paperwork and formalities

The negotiations between the United Kingdom and the European Union started this week. The conditions of Brexit are at stake. Although everyone is still in the dark about the consequences of Britain leaving the EU, Ronald Bergenhenegouwen and Alex Baulf give a rough sketch of a number of scenarios importers and exporters can already bear in mind. 

Both men from Grant Thornton in the Netherlands and the UK, presented their scenarios during the NT Port Event. Everything is said with the reservation that the future is uncertain. After the British general elections, during which the Tories lost their majority, the position of the UK during the negotiations has been weakened. The conservatives will have to work together with the Northern Irish DUP, who have a more moderate standpoint in the Brexit debate.

The process should be finished by March 2019. An extension of the negotiations is only possible if all member states agree. In theory, it’s also possible that the British will revoke their Brexit, although Alex says this is an unlikely scenario.

The most important topics for trade are the consequences for VAT and customs formalities, according to Ronald. As of yet, it is still most plausible that the VAT Act of 1994 will remain in effect. That is the current legislation. Claiming VAT in the UK will change. “It will take a lot paperwork to ask for VAT, and the process will take longer,” Ronald says.

Along with the additional paperwork, the interpretation of the legislation will be a bottleneck. Under European rules, no VAT is paid over transactions between a company and its subsidiary, but that could change. Another bottleneck: a company with its warehouse in the UK. Is that a service, so that VAT is calculated in the customer’s country, or is it real estate, so that VAT is paid in the country in which the warehouse is located?

The second change can be seen with customs. In principle, the UK will be the same as any other non-EU country after leaving. Because of that, all products will fall under regular customs formalities. Import levies, taxes on trade and administrative costs will become a part of this. For an importer, this means that importing via the UK will no longer be an option. A direct transport rule is in effect with other countries that have free trade agreements with the EU. Companies focused on the European market, might therefore have to move to a member country.

Dutch Customs is also concerned with the questions about the consequences of Brexit. After a preliminary study, in which people assumed the worst-case-scenario, a hard Brexit: the government calculated that millions would be paid in additional import and export declarations. All those additional formalities will make themselves felt. “It’s important that companies make an inventory of what can happen during a hard Brexit,” according to Johan Stoope of the Dutch customs in his presentation during the event. He hopefully talked about a ‘Brentry.’