This article has been submitted by Grant Thornton.
With the prospect of a ‘hard Brexit’ increasingly becoming a reality, have you considered how much additional Customs Duty your business might have to pay on products sourced from the EU?
Work carried out by Grant Thornton for an organisation, which imports approximately £60m of produce from the EU each year, suggests the additional customs duty cost could be as much as £9.5m per annum, an uplift of over 15% and it does not stop there! As import VAT is calculated on the customs duty inclusive value of goods imported, there could also be an adverse impact on working capital, as businesses are forced to fund the additional VAT cost until such time as it can be reclaimed from HMRC (if at all). That is an additional VAT cash flow cost of £475k per quarter!
What do we know now?
The International Trade Secretary, Liam Fox, has indicated to Parliament that the UK will look to apply the existing EU customs duty rates to imports into the UK, after Brexit. In practice, this means that UK businesses importing produce grown in the EU will be required to pay customs duty when that produce arrives in the UK.
Much has been made of the low rates, which often apply to goods imported into the EU, with many commentators citing an average rate of around 2%. However, this does not necessarily apply to food and drink imports. As these products are a basic necessity to the population, governments usually look to ensure that local producers are protected by adopting high customs duty rates, which ensure the sustainability of the local industry. Consequently, EU duty rates for such products tend to be higher and the UK is set to adopt those rates, which is not good news for the sector.
A typical example of the additional duty liability that importers could face is tinned tuna, which attracts a duty rate of 24%. Clearly, then, importers of food products should prepare to face high tariffs when buying from European suppliers, if the Prime Minister’s hopes of achieving a good trade deal with the EU are misguided.
What should you do now?
Grant Thornton have conducted a number of supply-chain reviews for clients, helping them to quantify the potential duty liability post-Brexit, as well as looking at potential options to manage and mitigate these costs.
If you would like to know more or to discuss your own review in more detail, please contact Louise Scholey, Associate Director, Indirect Taxes by emailing her at firstname.lastname@example.org