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By Ben Stupples
FTSE 100 companies are monitoring the U.K. government’s Brexit discussions with the European Union to identify extra tax costs, highlighting the uncertainty businesses face on the issue.
Within the past four weeks, both Royal Mail Plc and telecommunications business Vodafone Group Plc identified Brexit as a matter that may increase their overall tax charges in the future.
Royal Mail’s annual report, filed June 15, flags the “terms on which the U.K. leaves the EU’s customs union and VAT territory” as a possible tax risk. The London-based company is one of the largest of those involved in collecting taxes and duties for the U.K.’s tax authority, the report adds.
Vodafone, meanwhile, said in its latest annual report that it can’t rule out the chance of extra tax costs if the U.K. fails to reach “satisfactory” post-Brexit terms with the EU. “We continue to monitor developments in this area,” the Newbury, England-based company said in the June 1 report.
The comments from two of the U.K.’s largest public companies come amid growing political pressure over how the country will facilitate post-Brexit trade with the EU. Lawmakers within Prime Minister Theresa May’s own party are currently split over the trading terms to offer EU officials.
From the end of June, just nine months will remain before the U.K. leaves the EU. A transition period will follow that stage, however, delaying the U.K.’s ultimate exit from the bloc to the end of 2020.
“These are important discussions,” Moya Greene, Royal Mail’s then-chief executive officer, said in a May 17 earnings call on the U.K.’s talks with the EU. “We will need to see what transpires, we’re kind of like everybody else in a bit of a wait and see moment as far as Brexit goes and the customs union.”
While the U.K. doesn’t have to impose customs or excise duties, or VAT, on any imports or exports between member states as a member of the EU, the levies apply when it leaves the trading bloc.
The U.K. government is currently considering two options for its post-Brexit trade with the EU.
Under a customs partnership—one of the U.K.’s two options—Britain would levy tariffs at EU rates and provide refunds for goods destined for British markets if U.K. tariffs are lower. Maximum facilitation, the other proposal, would use trusted trader programs and technology to regulate the border.
Jon Thompson, chief executive of the U.K.’s tax authority, provided insight on how much it would cost the government to implement these systems, in an evidence session with lawmakers last month.
The customs partnership model, favored by Theresa May, would cost companies no more than 3.4 billion pounds ($4.5 billion) a year, Thompson told the Treasury Select Committee May 23.
In contrast, the maximum facilitation model that has been championed by Brexit-supporting lawmakers could cost businesses between 17 billion pounds and 20 billion pounds, he said.
That calculation is based on each customs declaration costing 32.50 pounds, multiplied by 200 million—the number of intra-EU consignements in 2016—and then doubled to account for businesses on both sides of the border. Another 3 billion pounds to 7 billion pounds is added for rules of origin requirements.
“The primary driver” for the higher cost of the maximum facilitation model “is the fact that there’s customs declarations,” Thompson said. A new customs partnership aims to provide “a free flow of goods,” he added.
In a June 18 statement, a Royal Mail spokeswoman declined to comment on which post-Brexit system the company would prefer for the U.K. due to its role in the country’s electoral process.
“As we have seen in recent weeks in particular, there is still a high level of uncertainty about future customs arrangements,” she said. “It is too early to give a firm view on what the potential impacts of different models might be.”
“We are working closely with the Government on the impact of various customs models, and have a good working relationship,” she added.
A spokesman for Vodafone didn’t respond to Bloomberg Tax’s request for comment.
A spokesman for Her Majesty’s Revenue and Customs said the U.K.’s tax authority remains confident that the country will have a customs system in place by the end of the post-Brexit transition period.
“We are actively engaging with businesses, representative bodies, intermediaries and infrastructure providers to support business readiness and understand the practicalities and timescales involved in implementing future customs arrangements,” the spokesman said in a June 19 statement.
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