U-turn on post-Brexit trade concessions as Freeports consultation opens

Nigel Roberts

Nigel Roberts

VAT Director

The UK government has made two announcements this week which start to fill in some of the detail on post-Brexit trade. Previously announced relaxations in border controls will no longer be available, but a consultation on new Freeports has been launched.

No relaxation of border checks

In the Brexit uncertainty of 2019, HMRC announced a series of relaxations in border controls and VAT payments to help ease the burden for businesses trading with the EU.

However, it has been announced that these will now be withdrawn. With the end of the transition period set for 31 December 2020, the government believes businesses will have time to prepare.

The government update noted that the “policy easements put in place for a potential no-deal exit will not be reintroduced as businesses have time to prepare”.

Businesses will now need to prepare for EU trade on the same terms as the rest of the world. This will mean border controls, import & export declarations and the payment of VAT and duty.

This will impact particularly hard on businesses which currently trade only within the EU. They will face additional administration, time and cost and should start preparing now. Government grants are available to support Customs training and we would recommend affected businesses act quickly.

Nigel Roberts

Director and Head of VAT

UK Customs Freeports

In a separate announcement, the UK government confirmed that it is consulting on plans to create up to 10 Freeports across the UK. These are secure locations inside the UK where business can be carried out under different customs rules, meaning the proposed Freeports will have different customs rules from the rest of the UK. Details of the consultation can be found online at gov.uk.

The announcement explains that Freeports are intended to act as national hubs for global trade and investment, while also promoting regeneration and job creation, and providing hotbeds for innovation. The proposed new model would allow businesses operating in Freeport customs sites to access a range of benefits and new opportunities to boost their international competitiveness.

The core customs and tariff benefits the government proposes to offer to businesses bringing goods into in a Freeport site include:

  • Duty suspension – No tariffs, import VAT or excise to be paid on goods brought into a Freeport from overseas until they leave the Freeport and enter the UK’s domestic market.
  • Duty inversion – if the duty on a finished product is lower than that on the component parts, a company could benefit by importing components duty free, manufacturing the final product in the Freeport, and then pay the duty at the rate of the finished product when it enters the UK’s domestic market.
  • Duty exemption for re-exports – a company could import components duty free, manufacture the final product in the Freeport, and then pay no tariffs on the components when the final product is re-exported.  
  • Simplified customs procedures – the Government intends to introduce streamlined procedures to enable businesses to access Freeports.

This means there would be no tariffs, import VAT or excise to be paid on goods brought into a Freeport from overseas until they leave the Freeport and enter the UK’s domestic market.

Freeports could be located inland as well as adjacent to ports promoting regeneration at sites throughout the UK in infrastructure, skills and housing.

It is anticipated that more detail will be available later, once the initial consultation is completed and interested businesses should monitor developments. However, it is key that those businesses trading with the EU, or intending to in the future, prepare now for the new trading landscape.

To talk further about how your trading activities could be affected at the end of the transition period, please get in touch with a member of the VAT & Duty team.