A week after the UK's taxman unveiled an exciting new system for modernising its existing processes, the government has published papers describing what might happen in the event the UK tumbles out of the EU next year without a workable deal.
Custom declarations in a no-deal world
In what should really come as a surprise to nobody, businesses will have to apply the same customs rules to goods moving between the EU and UK as they would for the rest of the world. This includes import and export declarations, dealing with import VAT (which has its own set of rules) and possibly engaging a customs broker to deal with the reams of red tape likely to be flung at the process.
Luckily, HMRC reckon they have just the thing in the form of Customs Declaration Service (CDS), which is aimed at importers and exporters trading outside the EU. CDS is designed to replace the elderly Customs Handling of Import and Export Freight (CHIEF) system and HMRC intends that it will "support the anticipated future import and export growth of the UK".
That growth is likely to be in the order of a jump from 55 million to 255 million declarations once the UK exits, so getting this new system into place by March and, more importantly, getting traders and suppliers registered and trained on it is critical.
With a warning from the National Audit Office (NAO) that failure to make the system work on time could be "catastrophic" ringing in its ears, HMRC announced that the first phase of CDS went live on 14 August. A "selected group of importers" have been given access to make "certain types" of declarations, so perhaps describing what has been emitted as a "release" oversells things somewhat.
The big test will come in November, when HMRC expects a majority of traders to start using CDS, although the venerable CHIEF system will remain running in parallel. The latest announcement is vague with regard to what happens next, only giving "early 2019" as an indication when rollout will complete.
Previously December 2018 was given as the date for full import and export functionality with migration of traders from CHIEF complete in January 2019.
Na na na na na na na VAT man!
As well as customs, VAT will also present a headache in the event of a no-deal Brexit.
Anything shipped into the UK is going to be hit by VAT (as is the case for shipments outside the EU at the moment). The government has promised a "technology-based solution" for parcels valued up to £135, requiring that overseas businesses register with the HMRC so VAT can be paid. The details on this solution are somewhat light at the moment, but the government reckons it will be accepting registrations by "early 2019". What could possibly go wrong?
VAT on "digital services" sold by UK companies to consumers in the EU will also be problematic since the UK will no longer be part of EU-wide VAT IT systems, such as the VAT Mini One Stop Shop (MOSS), which allows VAT to be reported and paid in the home member state. A failure to reach an agreement will mean traders will lose this convenience.
The government has offered traders some alternatives. One is to register for the VAT MOSS non-Union scheme in an EU member state, although this can't be done until the day after the UK actually leaves. Or a business could register itself in each EU member state where it intends to do business.
Since businesses have a mere 10 days to register following a sale, servers are likely to see a bit of stress during April 2019. Unless UK traders simply shut up shop as far as EU trade is concerned. ®