The document, the third in a series the tax authority has published outlining the impact of Brexit on businesses that trade with the EU, warns that if the government is unsuccessful in negotiating a deal, there ‘will be a significant new and ogoing administrative burden for businesses moving goods between the UK and the EU’.

The document analyses the costs of submitting a customs declaration which will be a core obligation for the movement of goods between the UK and the EU if a deal is not negotiated. 

At the moment, goods being imported into the UK from the EU do not need to be accompanied by a customs declaration. HMRC says the latest estimate of the increase in the total number of declarations annually (for both imports and exports) is 215m of which a sizable proportion will relate to import declarations.

HMRC points out that as businesses interact with customs in different ways, the costs they incur are different and can vary between £15 and £56 per declaration. Its analysis is based on looking at the new declarations and costs for five different groups of businesses, differentiated by their trade volumes and use of intermediaries.

The latest estimate for the annual administrative burden on UK businesses from additional import and export declarations is £7.5bn, with import declarations accounting for around half of this figure.

Additional administrative costs will also apply to businesses on the EU side of the border because an export declaration from the UK will need to have a corresponding import declaration into the EU and vice versa.

HMRC therefore estimates that the total ongoing administrative burden on UK-EU trade is £15bn a year. It says taking the costs on both sides of the border into consideration is important in order to understand the impact on UK-EU trade, as costs imposed on UK or EU businesses will have wider implications for supply chains, and therefore for consumers and businesses in either market.

Whilst many carriers, specifically large economic operators, are experienced in transporting goods to both the EU and non-EU countries, HMRC anticipates that submitting a form for goods arriving in the UK from the EU (ENS) and, where applicable, leaving the UK to the EU (EXS) will present a significant ongoing administrative burden for carriers, as it will be a new legal obligation and an additional cost to submitting a customs declaration for import and export purposes.

HMRC is to establish transitional periods during which the ENS and EXS are not required. There will be a 12 month transitional period during which there is no requirement to submit an ENS for goods imported from territories where the UK does not currently require these declarations (for example the EU member states, Norway, Switzerland); and a six month transitional period during which the EXS is not required to be submitted for the movement of empty vehicles, empty containers and pallets to the EU.

If the UK leaves the EU without a deal all acquisitions from the EU will become imports and subject to import VAT. In the absence of postponed accounting, businesses importing goods from the EU would face a cash flow cost due to the delay in reclaiming the import VAT paid on the VAT return.

HMRC points to new regulations under which postponed accounting will be available to VAT registered businesses in respect of their imports whether from EU member states or the rest of the world.

Postponed accounting will preserve the cash flow benefits that previously applied to acquisition VAT and it will also provide a cash flow benefit to businesses which import goods from outside the EU. The non-recurring cash flow benefit to business is estimated to be significant and a facilitation that will considerably mitigate the ongoing administrative burden of paying import VAT, HMRC states.

Temporary tariff regime

The Treasury has announced three amendments to its previously announced temporary tariff regime post-Brexit, following discussions with industry and consumer groups.

The first specific amendment relates to lower tariffs on HGVs entering the UK market, where the Treasury says the aim is striking a better balance between the needs of British producers and the SMEs that make up the UK haulage industry, ensuring that crucial fleet replacement programmes that help to lower carbon emissions can continue.

Secondly, it will adjust tariffs on bioethanol to retain support for UK producers, as the supply of this fuel is important to critical national infrastructure. Finally it will also apply tariffs to additional clothing products to ensure the preferential access to the UK market currently available to developing countries (compared to other countries) is maintained.

The Treasury says under the temporary tariff, 88% of total imports to the UK by value would be eligible for tariff free access.

It has also announced an exceptional review process, which will come into force on exit day, to make changes to the temporary tariff regime if necessary. Businesses and consumers will be able to provide feedback on the impact of the temporary tariff regime to the government through an online feedback form. The government will then review the evidence and consider whether any changes need to be made.

The regime would apply for up to 12 months while a full consultation on a permanent approach to tariffs is undertaken from January, as part of work to develop the UK’s independent trade policy.

HMRC impact assessment for the movement of goods if the UK leaves the EU without a deal (3rd edition)

Statutory guidance Temporary import tariff rates and quotas after no-deal Brexit