HM Revenue and Customs (HMRC) has issued a letter¹ to 145,000 UK businesses setting out actions they need to take now to prepare for the “unlikely event of the UK leaving the EU without a deal.” More substantial steps may be set out in subsequent letters, depending on political developments over the coming weeks. The UK government is also moving ahead with regulations to put new customs arrangements in place in case of a “no deal” scenario and has published an assessment of the significant impact of this on businesses.²

The UK government has made clear that its priority is to secure approval of the Withdrawal Agreement and Political Declaration in order to establish a transition period and the basis for negotiations on a future partnership agreement with the EU. But the government also continues to prepare for all scenarios, including the unlikely event that the UK will leave the EU without a deal.

“Call for Action”

Official advice to businesses to date has been restricted primarily to guidance in 106 Technical Notices explicitly intended to set out information to allow businesses and citizens to understand what they would need to do in a “no deal” scenario so that they can make informed plans and preparations.

HMRC has also published a 112-page “Partnership Pack” to provide a guide to customs processes and procedures that are likely to apply to cross-border activity between the UK and the EU in a “no deal” scenario, and how to prepare for them.

The letter issued by HMRC on 4 December to the 145,000 VAT-registered UK businesses which trade only with the EU goes a step further, listing three practical actions that businesses “need to take now” to prepare for the requirement, in a “no deal” scenario, to submit customs declarations for UK-EU trade:

1. Register for a UK Economic Operator Registration and Identification (EORI) number. This will be essential to be able to continue to import or export goods with the EU in the event of a “no deal” Brexit;
2. Decide whether to hire an agent to make import and/or export declarations on their behalf or ensure they have the necessary software systems in place to be able to do this for themselves;
3. Contact the organisation that moves their goods (for example, a haulage firm) to find out if they will need additional information to make the safety and security declarations for their goods, or whether to submit these declarations themselves.

The government estimates that, in the event of a “no deal” Brexit, the total number of customs declarations will increase by 205 million (from a current level of about 50 million). At a cost of £15-55 per declaration, this amounts to a cost to UK businesses of some £6.5 billion a year, with a similar additional cost applying to EU businesses.

Customs Legislation

In the event of a “no deal” scenario, the customs, VAT and excise arrangements in place as a result of the UK being part of the EU will no longer apply and new legislation will be needed to replicate the current rules for trade with non-EU countries, extending to apply also to UK/EU trade. Under the Taxation (Cross-border Trade) Act 2018 (TCTA 2018) and the EU Withdrawal Act 2018 the government is introducing regulations through to February 2019 that will set out the legal framework for a new customs arrangement in such an event.

The government has published an assessment of the impact on businesses of the first tranche of these regulations, including:

• the costs of submitting customs import declarations;
• the ongoing costs associated with paying import duty and import VAT;
• applying to be an Authorised Economic Operator;
• temporary storage and Special Procedures such as customs warehousing, inward processing, outward processing, authorised use (end use) and temporary admission;
• transit procedures (the UK is seeking to accede to the Common Transit Convention) and the International Road Transport (TIR) Convention
• VAT; and
• a range of regulations estimated to have negligible costs or no impact on businesses, for example the collection of trade statistics and the introduction of a civil penalties regime for UK customs.

While a “no deal” scenario continues to be unlikely, we advise that businesses should plan on the basis that a "no deal" exit remains a possible outcome. These HMRC measures represent a change in gear by the UK government to prepare for a “no deal” scenario, in terms of both encouraging businesses to step up their preparations and putting in place the legislation necessary to establish new customs arrangements. If they have not done so already, businesses engaged in trade between the UK and the EU should urgently consider following the advice in the HMRC letter and the wider-ranging actions set out in the Partnership Pack. Please refer to our “no deal” planning available in the Dechert Brexit Resource Center.