Brexit: Suspensive regimes are going to be more important

I am going to start this article with a whacking great assumption.  And it is not that these regimes are going to become more important following Brexit, because that is an inevitable fact for managing Duty and VAT in the post-Brexit hinterland.

Whacking Great Assumption

No, the assumption is that the UK will not see any significant change to its suspensive regimes.

Why would I hope this, when my norm with Brexit is to plan for the worst and hope for the best.  I believe if the UK Government really wants frictionless trade and to remain as close as possible to the EU27 in respect of Customs (which it says it does), then to not to scrap or change the suspensive regimes so that they are divergent from the EU27 suspensive regimes, seems to be the only sensible way forward.

Yes, there are some big issues with these assumptions, but given that UK politicians have made it clear they don’t really understand Customs we have a reasonable chance that the regimes will see minimal or no change.  After all, there is really no UK political capital to be had by making cross border trade even more difficult after Brexit for UK businesses or their suppliers from the EU27 (and vice versa).  Quite the opposite since, for example, the UK motor industry is very important to the UK, and we know that goods move back and forth across the channel; suspensive regimes are going to be needed.  The same goes for aerospace and other technology-based industries.

Using existing suspensive regimes for trade between the EU27 and the UK provides at least some oil for the proposed frictionless solution (whatever that is).  To put that another way, retaining the suspensive regimes is something the UK and the EU27 would not have to work on in the limited time left.

Why are they important?

Having sought to justify my huge assumption (I find myself cringing already) perhaps I should explain why the suspensive regimes will become more important.  Unless either the UK or the EU27 puts up massive trade barriers, which in my view is in the interest of neither party, then trade will, still go on between the UK and the EU27.  Without the suspensive regimes costs will be increased and goods could be delayed in their movement putting, for example, just in time processes at risk.

New UK subsidiaries

We know that some EU businesses have decided to set up UK subsidiaries to manage their activities in the UK, and that is certainly a solution, not least because of the UK’s relaxed regime for setting up incorporated companies and the UK’s already favourable corporation tax regime.  It may also become easier as regards employment as it is clear that the UK Government is scrapping EU employment rights and as yet has not started to put any replacement system in place.  It is, however, clear that one aim of the UK Government is that it will become easier to both employ and fire people in the UK.

Suspensive Regimes and AEO

However, another solution is the use of suspensive regimes.

Can I first say that I believe that Authorised Economic Operator (“AEO”) status will remain important and most probably become far more important.  Basically, AEO means showing that you are compliant in return for an easier regime at borders.  It is a bit like having a golden passport for your business.  I’ll come back to the subject in more detail in a future article.

“Suspensive regimes” are ways of managing Duty and VAT on movement of goods between Customs regimes (so between the UK and the EU27).  Here I’m restricting myself to look at three regimes – Inward Processing, Outward Processing Relief and Customs Warehousing.

Inward Processing

You can currently use Inward Processing (IP) to obtain Duty and VAT relief on goods brought from outside the EU into the UK.  Clearly following Brexit, it makes sense to retain IP but to extend it to goods coming to the UK from the EU27 for processing and repair (there I go again with another assumption).

At present IP can be used by EU businesses bringing goods into the UK.  It is most likely that following Brexit, IP will only be available for businesses based in the UK.

In brief, the goods come into the UK, undergo their process and then leave the UK.  This operation is performed VAT and Duty free in principle – you can get involved in a regime where you can claw back the duty paid, but I always feel that getting tax back off the taxman is harder than keeping control of it in the first place.

If you’re Importing goods for process regularly then you need authorisation to use the procedure.

Outward Processing Relief

Outward Processing Relief (OPR) is the opposite of IP.

Thus, right now it looks at goods leaving the UK to a country outside the EU for processing (say the USA) and then returning after processing.  The idea is for the goods to leave and come back into the UK without an additional charge as to Duty and VAT.

One difference to IP is that authorisation is always required.

Customs Warehousing

Then there is Customs Warehousing.

You can store imported goods with duty and VAT suspended.  At the minimum it provides a cash flow cost.  In some circumstances it can create savings, certainly if the goods imported suffer damage, for example, and must be scrapped – scrapping in warehouse is possible and then saves the Duty which would have been paid on the goods.

You can have your own warehouse, or else use a public warehouse.  It is even possible to have a virtual warehouse which effectively sits upon a modified stock control system.

One of the key issues when considering warehouses is dwell time – the longer the potential dwell time, the greater the case for the use of a warehouse.

Another whacking great assumption

Well if these regimes are not already on your radar, then the next step is to get advice to set them up.

I have a second great assumption, and that is that right now we won’t need them on 29 March 2019, but instead after 31 December 2020.  I cannot say that for sure, such is the nature of the Brexit process.  If things go badly, we will need to use them from 29 March 2019.  If they go unbelievably well, we may not even have to use them after 31 December 2020 – right now I think the chances of that are as close as you can get to nil, without being nil, but you never know.

Don’t forget the suspensive regimes are available in the EU27

And of course, we are not just taking about using these regimes in the UK.  Right now, they are EU regimes and so I anticipate that they will continue to be used in the EU27.

Hence UK companies which decide to set up a company, say, in France following Brexit, may wish to use the procedures and in any event UK businesses sending goods for processing to the EU27 should ask their processors (or repairers) to confirm that they will be setting up IP, for example.

Summary

As usual, there is a lot more to these regimes – record keeping is king if you wish to avoid big bills, for example.  But if we cannot help you with adopting the regimes ourselves, we have partners throughout the EU27 who are happy to help.

However, ignoring the possibility of adopting such regimes could cost you money and may even hold up your business.  So, if you haven’t already investigated suspensive regimes, please do so with some urgency.  They don’t get put in place overnight and the closer to Brexit we get, the longer the lead time I expect between HMRC receiving applications and their authorisation.

Steve Botham