Race against time for Theresa May

A summary of the night before

It perhaps comes as no surprise that Theresa May has suffered defeat in a catastrophic vote on her Withdrawal Agreement in parliament on the evening of Tuesday 15 January 2019—an event that critics believe has been two years in the making.

May now has until Monday 21 January to reveal her new plans, as well as ascertaining that negotiations take place with both MPs and the EU27 for changes that will satisfy both sides.

432 votes to 202 reveals the clear divide within all parties (a divide that deeply resonates throughout the country). However, what is more alarming still is the fact that 118 out of 317 of May’s own party voted against the deal.

Adding fuel to the fire, opposition leader Jeremy Corbyn has tabled a vote of no confidence in the government. To be held Wednesday evening, it is expected May will win this vote once again. However, should May lose this vote, a general election will be called, thus making this uncertain period all the more chaotic.

What next?

The question now centres around what kind of exit from the EU Britain will be allowed. The EU27 has been united throughout the entire negotiation process—this is something of a painful juxtaposition when compared to the fractious debates happening across the UK.

The debate will now concern the rather ambiguous future of a “clean break” – an argument most largely supported by EU sceptics and Brexiteers – or a watered-down deal that attempts to pacify both those who voted leave and those who voted to remain.

The European Council president, Donald Tusk, and president of the European Commission, Jean-Claude Juncker, wrote in their joint open letter to May on Monday 14 January that they “consider that Brexit is a source of uncertainty and disruption.”

They went on to state: “In these challenging times, we therefore share with you the determination to create as much certainty and clarity as possible for citizens and companies, in a situation where a Member State leaves the European Union after more than four decades of closest economic and political integration. That is why the Withdrawal Agreement that you and the Leaders of the 27 EU Member States agreed after long negotiations is so important. It represents a fair compromise and aims to ensure an orderly withdrawal of the United Kingdom from the European Union, thereby limiting the negative consequences of Brexit.”

One aspect of May’s negotiated Withdrawal Agreement involved the backstop. On the topic, Juncker and Tusk said: “The Withdrawal Agreement including the Protocol on Ireland/Northern Ireland embodies the shared commitment by the European Union and the United Kingdom to address the unique circumstances on the island of Ireland as part of ensuring the orderly withdrawal of the United Kingdom from the European Union. The Commission can confirm that, just like the United Kingdom, the European Union does not wish to see the backstop enter into force. Were it to do so, it would represent a sub-optimal trading arrangement for both sides. The Commission can also confirm the European Union’s determination to replace the backstop solution on Northern Ireland by a subsequent agreement that would ensure the absence of a hard border on the island of Ireland on a permanent footing.”

Guidance for UK businesses

MHA MacIntyre Hudson has since highlighted the importance of proactive and practical changes that businesses will need to consider making, particularly in the instance of a no deal.

Alison Horner, indirect tax partner at MHA MacIntyre Hudson, commented: “The main areas of concern for EU-focused import and export businesses include new customs reporting requirements, the continuity of supply chains, additional administrative burdens, and new statutory obligations. An estimate provided by HMG representing increased import and export declarations was £6.5bn, and over half this figure relates to import declarations. Each individual declaration is estimated to cost business between £25 to £55.”

Horner has advised that a “pro-active approach to mitigate these issues needs to begin with ensuring your business has the correct commodity codes and any export licenses needed to trade. It is also crucial to make sure you know the facts about all types of customs relief you may be eligible for to avoid paying duty unnecessarily. A firm that knows how to navigate the administrative maze and has a customs plan ready for 29 March will be able to take steps to secure the softest possible landing in the event of a no-deal.

“You need to make sure you’re registered with HMRC for an Economic Operator Registration and Identification (EORI) number, the unique identification number which allows you to trade with the EU. You must check whether your goods require an export license and whether they will be subject to any special rules in respect of their movement. The correct commodity code for your goods will help you identify the amount of UK import duty payable, whether that duty can be suspended, if you can apply for any preferential duty rates and whether you may need an import license.

“The next step is to establish the correct customs procedure for your goods. Businesses need to consider how they will make their declarations to HMRC and whether this will be facilitated through a third party, such as a freight forwarder or a customs broker. If you employ a third party, you must provide clear instructions on the treatment of your goods.

“You must consider whether you are eligible to apply for any customs procedures which may provide relief from duty—for example, use of or approval to operate a Customs Warehouse facility, Temporary Admission, Inward or Outward Processing Relief.  Another consideration is International Commercial Terms (INCOTERMS), or shipping terms, agreed between contracted parties, i.e. the supplier and purchaser, as they may determine the risk and liability for the movement of goods, including liability for any UK import duty. If your supply chain is going to evolve and you will import direct into Europe, VAT registration in the country of importation may be necessary.

“Another proactive measure to consider is implementing a Customs Duty suspension regime. These schemes require care and attention, but the payback is well worth the effort and can prevent you paying double Customs Duty.”

Horner concluded: “Being part of this regime marks out your business as proactive, compliant, and forward thinking, [and therefore] important to future success. Comprehensive knowledge of customs arrangements and careful planning will likely prove the key to making the best of a no-deal Brexit.”

In conclusion

Following May’s defeat last night, taking to Twitter, Tusk wrote: “If a deal is impossible, and no one wants no deal, then who will finally have the courage to say what the only positive solution is?”

It remains to be seen who will provide an effective answer to this question.

May is running out of options and, in the time it will take for her to decide, further division and heated debate will only continue.

We would love to get some industry insights into Brexit. How will this impact the economy? What do you think will happen next? As ever, please feel free to reach out to any member of the Accountancy Age team with your views.

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