U.K. May Spend More on ‘No Deal’ Brexit Tax Plans in Early 2018

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By Ben Stupples

The U.K. may spend more on its “no deal” tax plans for Brexit from the start of next year if negotiations with the EU stall, according to Chancellor Philip Hammond.

At an Oct. 11 Treasury Select Committee hearing, Hammond told lawmakers the government will “need to start spending money in the new year” on plans for a new customs, value-added tax and excise duty regime if an agreement with the EU on the issue looks unlikely by then.

Hammond’s comments come after the U.K. Treasury published Oct. 9 its most detailed plans yet on the scenario of the government failing to negotiate a post-Brexit transition period with the European Union on customs and excise duty and VAT for when it leaves the trading bloc in March 2019.

Ideally, the U.K. wants the EU’s customs, VAT and excise duty regime to apply for a temporary period once it leaves, giving businesses a smooth transition. Yet with fewer than 18 months before it leaves, the Treasury said Oct. 9 it is planning for “all possible outcomes.”

EU Single Market

While it’s in the EU, the U.K. doesn’t have to impose customs or excise duties, or VAT, on any imports or exports between member states under the bloc’s free-trade single market. They will apply in the U.K. once it leaves the EU, however—meaning it needs to set new laws.

Hammond’s comments to the select committee, which scrutinizes the Treasury’s work, also came as he stressed that he won’t unnecessarily authorize more spending on the no-deal plans for Brexit. The Treasury already has committed 250 million pounds ($329.7 million) to them, he added.

“A key issue is making sure that we are ready with a minimum effective solution on Day One after we leave the European Union in the case of a no deal scenario,” he said Oct. 11. Equally, the Treasury will ensure that “we don’t start committing substantial amounts of funds any earlier than we need to, in the hope that the no-deal scenario will become something we don’t have to plan for.”

Customs Bill 2017

The government’s Oct. 9 paper forms part of its strategy to introduce a Customs Bill later this year to prepare the country for any outcome from trade negotiations with the EU.

Hammond said in the paper that the U.K. prefers a negotiated settlement instead of having no trade deal with the EU, echoing the government’s stance in an Aug. 15 future customs policy paper.

In the previous paper, the government indicated it aims to ensure its future customs regime remains closely in line with the EU’s.

The government also called for a transition period between the U.K. leaving the EU and its enforcement of a new customs regime, aiming to cut disruption to businesses on both sides.

An agreement over this transition period “should be reached as soon as possible in the negotiations to give businesses certainty and clarity about the future,” Hammond said Oct. 9. “How long the period is should be determined simply by how long it will take to prepare and implement the new processes and the new systems that will underpin our future partnership,” he added.

‘No Deal’ Scenario

If the U.K. and EU fail to reach a trade deal, the Treasury said it will seek to mitigate the effect on traders that operate only in the bloc, who face VAT and customs duty on future U.K. imports.

In addition, the Treasury said in the paper a no-deal scenario would result in operators of heavy goods vehicles notifying the U.K.'s tax authority on imports and exports ahead of their arrival at ports.

At the same time, any exporting vehicles would have to present their goods as far inside the country as possible, in a similar effort to prevent the disruption of trade at the U.K.'s borders.

“While the U.K. hopes and expects to achieve a negotiated settlement that is in the interests of all parties, it is only prudent that the government prepares for every eventuality,” the Oct. 9 paper said.

To contact the reporter on this story: Ben Stupples in London at bstupples@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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