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Brexit – Customs Duty – UK Businesses “hard Brexit”

Please note that the information herein is of a general nature and you should not act or refrain from acting on it without professional advice on the specific facts of your case. No liability is accepted by the author or Sykes Anderson Perry Limited in respect of this article. This is a basic outline only and is intended only as a general guide.

Customs Duty is an important issue for many UK businesses currently sourcing goods from the EU. Whilst the UK is still in the EU no UK Customs Duty is levied on EU imports. The EU countries vice versa do not levy Customs Duty on UK exports to the EU. This could all be about to change with a “hard” Brexit with Customs Duties applying on goods being sold either way.

VAT

As an aside VAT does have to be accounted for on arrival in the UK but can be reclaimed so is at worst a cash flow issue. It is not considered in this article as it will not be relevant for most traders.

Customs Duty is not like VAT in that it cannot be reclaimed. Once paid over it is gone. This is why suppliers within the EU have an advantage over non EU suppliers because they do not have to build Customs Duty into their prices. However this could all be about to end in a potentially unhappy way for some UK businesses.

UK leaves the EU Customs Union

Once the UK leaves the EU if it also leaves the EU Customs Union (hard Brexit) then costs are going to increase for supplies from the EU. Similarly supplies to the EU will be hit with EU Customs Duty. This is because if the UK leaves the EU with no agreement it will treat the EU in the same way as any other country. The EU will do the same back to the UK.

The rates

Customs Duty rates are not the same for all goods. You can find the rates at www.gov.uk/trade-tariff

The higher the rates the more at risk you are to a big price rise.

What to do now

  • Make sure you know what you are importing from the EU and the Customs Duty which could potentially be payable if the UK leaves the EU Customs Union.

  • See if you can source from elsewhere outside the EU. It may be best to start developing supplier contacts outside the EU now.

  • Check how long your supply agreement is for.

  • When you renew build in a clause about rights to terminate early if prices go up because of Customs Duty.

  • Think about your customers. If you face a big costs rise how will you pass this on to them?

  • Can you source supplies from within the UK and avoid Customs Duty issues entirely? This is probably the best outcome if there is a UK supplier.

  • If your EU supplier is mainly supplying to the UK will he be able to stay in business post a hard Brexit?

  • Similar thoughts should apply if you are a supplier to customers in the EU. Your business model may no longer be sustainable if your EU customers face high EU Customs Duty on your goods.

For further practical Brexit advice contact Sykes Anderson Perry Limited.

July 2017
David Anderson
Solicitor