CIOT/IFS debate finds agreement that Brexit is a once-in-a-lifetime chance to craft and simplify VAT and customs duties.

A recording of the event can be viewed - here

The 8 December 2020 debate was chaired by new CIOT President Peter Rayney.

There are three main taxes levied on goods currently imported from non-EU countries and EU special territories: import VAT if the goods are subject to the standard or reduced rate of VAT; Customs Duty on imports above a certain value; and if the goods are alcohol or tobacco from outside the UK, Excise Duty is applicable. Customs duty is enforced to protect a country's economy and to control cargo entering and exiting a country. When the transition period ends and Great Britain (not Northern Ireland) leaves the Customs Union and the Single Market, EU member states will become subject to the import rules.

VAT expert Daniel Lyons, a CIOT Council member, took the audience on a trip down memory lane with the EU, touching on matters such as the 6th Directive, then brought us up to date by touching on the current tribunal process. Lyons considered the potential positive impacts of Brexit to include the move to postponed accounting to apply to all imports post-transition, and the end of both the Retail Export Scheme (RES) – because it will save the Exchequer money and simplify VAT - and the Tour Operator Margin Scheme for overseas supplies. But he also spoke of the drawbacks of Brexit, such as loss of the digitised 8th Directive refund system (move to a paper based refund system) and the end of access to the VAT Mini One Stop Shop (VAT MOSS). He worries about the scope for ‘legal chaos’ because of the risk of competing legal interpretations of the tax rules between the EU and UK. Lyons, until November head of tax policy at Deloitte, said most of the problems with VAT are down to UK lawmakers and much of the VAT Tax Gap is down to errors, some of which he says is the result of the complexity of VAT. Post 1 January 2021, he wants an axe taken to VAT reliefs and the slashing of the VAT registration threshold, saying the latter provides a ‘bizarre incentive’ for businesspeople to avoid growing their business.

Mojgan Ahmad, VAT and Indirect Taxes, HMRC, spoke about the Northern Ireland (NI) Protocol. Ahmad explained that, under the Protocol, VAT will be collected through the periodic VAT return for goods sold and moved between GB and NI using the same boxes on the return. VAT will continue to be accounted for as it currently is on goods traded between GB and NI, even though technically it is import VAT in NI. Postponed accounting will be available for rest of the world (non-EU) imports into NI. She said HMRC will create a new NI landing page on Gov.UK, along with other fresh Brexit guidance material soon. She accepts businesses are nervous about Brexit. HMRC will be sympathetic and flexible when it comes to Brexit related genuine errors before penalties are charged, she promised.

Barbara Scott, Chair, Customs Practitioners Group, reminded the audience that the UK has set most favoured nation rates with WTO. On UK global tariffs, she said we could see simplified tariffs and liberalised tariffs – but there are still many unknowns at the time of this debate. Even if the UK clinches a Free Trade Agreement with the EU, it does not mean all trade with the EU will be tariff free because of origin rules. Beyond 2021, there should be a discussion of the purpose of tariffs. Tariffs should protect industry and encourage production, she said, and called for greater trade liberalisation.

Chris Giles is the Economics Editor at the Financial Times. In a short contribution, Giles said we must watch for businesses going under because of the way the new regime is administered and that postponed accounting may lead to more opportunities for fraud. He warned that although OBR statistics show the loss of RES is not a big deal in the big picture, the problem is that its effects are concentrated in some areas and shops – and the media has got its teeth into the story. It is also unclear to him whether Border Force will adopt a light touch or strict approach to managing checks on tourists.

During audience questions, Scott said she was working in customs before the single market was introduced and the UK was always a leader in trade facilitation. “We can be again,” she said. The UK has hidden behind an EU 'facade' she said, adding that hopefully we will be more lenient on businesses that make errors in future. Lyons said the UK could produce a road map towards a simpler VAT system with a broader base and lower rates. Ahmad emphasised the importance of acting now, urging traders to find a good customs intermediary as soon as possible. There will be changes no matter whether there is a deal or not, she warned.