Brexit negotiations: progress to date


Susie Walker

Susie Walker

Partner & Head of Tax

05 October 2017


    The fourth round of monthly Brexit talks concluded last week and the European Union (Withdrawal) Bill has begun its journey into UK law.

    With news of disunity within the UK Brexit negotiation team and discussions in Brussels becoming ‘dangerously entrenched', Theresa May addressed the Conservative Party conference in Manchester this week offering no new detail on the Brexit negotiations but recognising the frustrations experienced by many and offering some reassurance that the government was preparing for every eventuality.

    Her previous speech in Florence aimed to uncover the detail on what she aims to achieve for the UK in the Brexit deal, providing clarity on some points but leaving many questions still unanswered.  

    What did we learn from the Florence speech?

    She confirmed that she is looking for a transition period of around two years to be agreed for people and businesses to adjust. She also wants to incorporate an agreement on EU Citizen rights into EU law, and for UK courts to be able to take into account judgments of the European Court of Justice (ECJ). She also confirmed she is seeking a unique deal for the UK and not one based on existing models such as those in operation in countries like Norway and Canada; and she made a vague statement around how much the UK would be prepared to pay in the financial divorce settlement. 

    MEPs have now voted to avoid wasting time on further Brexit discussions until there is a breakthrough in negotiations; leaving the current situation very difficult and up in the air.

    Meanwhile, we have the Lord Mayor of London calling for the Brexit transition deal to be signed this year as banks need certainty on how they will be regulated in the post-Brexit world and on how much time they will have to transition. Without clarity on these key concerns, financial services firms could make plans to move operations from London and set up elsewhere.   

    Background:

    The UK and EU negotiating teams are scheduled to meet face-to-face for one week each month, with three top priorities to be progressed:

    1. Rights for citizens living in the UK after Brexit,
    2. The divorce bill – i.e. the amount the UK will pay to leave the EU,
    3. Avoiding a hard border between the Republic of Ireland and Northern Ireland.

    Following Theresa May’s speech in Florence there remains little clarification on the position Britain will be in post Brexit, which is currently scheduled for Friday 29 March 2019. Several UK and EU figures have suggested a ‘transition’ period of up to three years to allow for a smooth implementation of whatever Brexit deal is struck to help minimise the disruption to businesses. However, as yet, there is no Government sign off on such a move. 

    The European Union (Withdrawal) Bill

    The European Union (Withdrawal) Bill passed its second reading on Monday 11 September. It will repeal the 1972 European Communities Act which took Britain into the EU and meant that EU law took precedence over UK law, and will also end the jurisdiction of the ECJ. All existing EU legislation will be copied into UK domestic law and the laws will then be amended as appropriate. The plan is for the legislation to be passed ahead of the UK’s exit date from the EU. How these legislative changes will impact the devolved Scottish Government is unknown but to date, the bill has been described by the Scottish Government as ‘an executive power grab’ from Westminster.

    Single Market or Customs Union?

    A Customs Union allows EU member states to all charge the same import duties to countries outside the EU; allowing member states to trade freely with each other without strict border checks. However, it limits each country’s ability to strike their own trade deals.

    The Single Market allows free trade between members; there are no tariffs, taxes or quotas charged on goods and services moving within the area but members are free to create their own trade deals. 

    UK Stance

    Currently, the UK will leave the single market and the customs union on the day of Brexit, but it will try to replicate existing customs arrangements during a time-limited transition period.

    Theresa May has said that, “leaving the EU without a deal would be better than leaving with a bad deal”. If this was to happen then the UK would need to work under the World Trade Organisation rules, which could mean customs checks and tariffs on goods. 

    What does this mean for business?

    If there is no deal struck, or the Government decides to impose working permits on EU nationals, then other countries could do the same. This would mean Brits working within the EU would be required to register for work visas. The impact of this on business could mean a shortage of labour both in the UK and EU.

    Businesses could also face heavy tariffs and charges depending on the negotiations post Brexit with EU member states. 

    Customs Duty Charge

    With no deal struck, MPs and Peers will legislate to impose new customs duties and VAT tariffs on trade with the EU. A Government paper, Future Customs Arrangements, makes clear that without a deal, the UK will continue to trade with EU countries as if they were out with the EU. This would mean that agreements would need to be made with each member state.

    Businesses may need to pay customs duty, as well as import VAT when goods enter the UK from the EU and there may be customs declarations and fees associated with such a move. As a result, costs for consumers and businesses could increase significantly.

    Preparing your business for the transition

    To best prepare for Brexit it is important to understand how your business operates across the EU and how it interacts with the various charges and tariffs currently in place. It may take a significant amount of time to fully analyse the impact that any of the possible Brexit outcomes may have on your business and as such you should seek professional advice to best plan for the uncertain future ahead. Our Brexit planning tool can help.