HMRC warns of £6.5bn cost of no-deal Brexit

6 December 2018

Some 244,000 British businesses that trade with the EU would suffer the impact of a no-deal Brexit, with costs rising by billions for the paperwork to enable them to trade overseas, HM Revenue and Customs has warned.

The bleak outlook is revealed in the HMRC’s impact assessment on the movement of goods if the UK leaves the EU without a deal.

It warned: “Businesses currently trading within the EU would be faced with complying with customs procedures, resulting in significant ongoing administrative burdens in having to submit a customs import declaration and pay import duty.”

The impact assessment states that each declaration could cost up to £55 and estimates that “the administrative burden on UK businesses from additional import and export declarations is £6.5 billion with import declarations accounting for around half of this figure”.

It added: “In the event of a no-deal scenario, businesses will be required to pay import duty and import VAT on imports from the EU for the first time (import VAT will replace the current acquisitions VAT). This will be a significant ongoing cost to businesses.”

At least 144,000 VAT-registered businesses who currently only trade with the EU, and who are therefore likely to be new to customs procedures, will be impacted, as well as 100,000 non-VAT registered businesses who also trade with the EU, according to the assessment.

This comes just weeks after HMRC warned that Britain will have a “sub-optimal” customs system in the event of a no-deal Brexit.

Amid intense political debate ahead of next week’s vote on the government’s draft Brexit deal, leading firms are continuing to warn of the risks of a no-deal Brexit.

Failure to reach a deal in time for Britain’s exit from the EU in March next year could have a “serious impact” on the production of cars in the UK, Toyota has warned.

During an evidence session before the Business, Innovation and Industrial Strategy Select Committee, Tony Walker, deputy managing director, Toyota Europe, said a no-deal Brexit would mean “stop-start production for weeks, possibly months...The value of the cars we make is £10 million a day. If you lose that value, it's very challenging for us”.

He told MPs that Toyota’s supply chain is reliant on a continual flow of goods. “We run integrated just-in-time European supply chains, we have 50 trucks a day coming through the (Channel) Tunnel, we carry just four hours of parts at the plant and collect the parts in sequence to the build.”

Walker added: “We have to have not just 50 trucks a day but we have to have them in sequence. It’s no good if we have 49 and truck 17 is missing. We would then stop.”

With concern over any disruption to the flow of goods harming the just-in-time model on which many supply chains are based, a growing number of companies are making preparations to cope with any post-Brexit transport chaos – with many already stockpiling goods.

One of the latest to announce its plans is retailer Joules. In a trading update, the group said: “Contingency plans have been put in place to mitigate the expected disruption that could arise in the event of a hard Brexit.”

It added: “These plans include establishing an EU-based third party distribution facility; scheduling earlier inbound product deliveries for our spring/summer 2019 ranges; preparation for expected increased administrative activities; and hedging US dollar requirements more than 12 months forward.”

The outcome of Brexit remains unknown, with the likelihood of the draft deal being approved by MPs next week appearing increasingly remote.

Meanwhile the economy is showing ominous signs of stalling.

This week SM reported how growth in UK services has slumped to its weakest in almost two-and-a-half years, with the IHS Markit/CIPS UK Services Purchasing Managers’ Index falling to 50.4 last month, down from 52.2 in October.

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