When the UK leaves the EU, what new customs duties will be payable, how much will these duties be, and who will end up bearing the cost of any increases? This has been the question on everyone’s lips in the transport industry, and until recently, it was impossible to get a reliable answer.

Thanks to new guidance from the UK government, we now know what the VAT rates and customs duties are likely to be, and how these costs will impact exporters in Ireland and the rest of the EU, in the days following any Brexit scenario.

Why is UK Customs and VAT worth paying attention to?

VAT and Customs Duties are the 2 taxes that can be applied by HMRC to goods imported to the UK. Goods imported from suppliers within the EU are exempt, and the customs duty rate is effectively 0% for many goods imported from non-EU states, so customs has not presented a major problem for businesses supplying the UK for many years now.

When Brexit takes place, hundreds of thousands of businesses in the UK and EU member states will be required to make customs declarations for the first time. While most businesses can calculate the administrative costs of this new legislative burden, the actual amount of money payable in taxes on each shipment has been harder to pin down.

How much will I have to pay UK Customs after Brexit?

This is the most important question for a lot of businesses. The UK government has created an online customs calculator tool, where businesses can check what duties are currently payable on goods coming in from non-EU countries, but this tool can only show the tariffs that apply today; there has been little or  no firm advice on what the duty rates will be after Brexit.

Even though import taxes are paid by the buyer, this customs rate uncertainty has created problems for many of our clients selling into the UK. Because of the uncertainty, UK customers have been unable to forecast their profit margins on orders six months into the future, which has left them with limited options. To hedge against customs duty hikes, buyers could only either trade on DDP Incoterms (effectively pushing the responsibility for duty payment onto their supplier), attempt to renegotiate existing contracts, or postpone longer-term ordering decisions, none of which was helpful for the buyer or the seller.

Thankfully, the UK government has now published some guidance on transitional customs tariff rates, designed to cover the period immediately following the UK’s departure from the EU.

Post-Brexit Customs Rates for Mainland Europe:

The UK is committed to providing special customs arrangements for the NI / ROI border. They have stated that very few classes of goods will be subject to checks, and they have even gone as far as to say that traders crossing the Northern Ireland border will not need an EORI number (full guidance is available here).

For EU businesses outside of Ireland, there are separate, slightly more complicated arrangements. The UK / Mainland EU customs climate will evolve in two phases:

  • Phase 1: Temporary Zero Rating
    The UK are now planning to temporarily zero-rate the tariffs payable on 87% of UK imports in the days immediately following Brexit. This is great news for businesses across Europe as they now have a degree of certainty that they can build into their medium-term financial forecasts. To see precisely which classes of goods will be zero-rated, take a look at the UK Government’s Temporary Rate Guidance.
  • Phase 2: Permanent Tariff Schedule
    When the transitional 0% rates come to an end, EU exporters will need to prepare for a new schedule of tariffs, which has yet to be decided. If the UK leaves on the terms set out in the Withdrawal Agreement, or if it remains in a customs union with the EU, we can expect the current rates of customs duty to be maintained. If the UK leaves with no deal, then it’s likely (but not guaranteed) that the UK will prepare to default to its own set of standard WTO tariff rates. In any event, we expect that new tariffs will be phased in gradually over a reasonable period of time.

Are the UK going to impose high import tariffs?

Given that the USA has today raised import tariffs on some $200bn worth of Chinese imports from 10% to 25%, you could be forgiven for thinking that the same dramatic jumps in tax rates could start affecting EU/UK trade when Brexit is triggered. We see no reason for this kind of punitive behaviour between the UK and the EU, however; we expect any future tariff rate changes to be in the low single digits, if at all.

At the moment, the UK takes approximately £3 billion a year in customs duties. The costs of administering tighter customs controls at EU-facing borders are high (the UK has already had to allocate approx. £1.4 billion to border-related departments), so any immediate increase in customs revenue is likely to be swallowed up by new border control costs. What’s more, the £3bn customs income is dwarfed by other taxes payable in the UK (for instance, stamp duty on land and property amounted to nearly £13bn last year). Any temptation the UK government might feel to announce a sudden jump in import taxes will have to be weighed against its likely cost to other sectors of the British economy.

Preparing your business for Brexit:

You can find out more about what tariff codes you need to be aware of, both in the UK and elsewhere in the world, on our Tariff Codes page. The UK government’s website has more technical information on upcoming UK tariff changes here, and we plan to update our news section as-and-when more information becomes available.

At Baku, we’re watching the latest Brexit negotiations closely, and planning for every possible customs scenario. Whatever Brexit looks like, and whenever it takes place, Baku GLS will continue to deliver excellence – on time – every time. Find our more about our Brexit preparations on the Baku Brexit Hub.