UK and EU negotiators arrived at this solution as a way of avoiding a hard border between Northern Ireland and the Republic of Ireland (known as “the backstop”), which will become the post-Brexit dividing line between the EU and the UK.
The agreement is supposed to be temporary, only until the two sides work out other arrangements to avoid checks at the border, which could emerge as part of talks on a full trade deal, to take place during the transition period (ending in December 2020).
Due to the above, there remains a strong likelihood that the UK may remain in the Customs Union for some time, and perhaps indefinitely.
The Customs Union is an agreement across all the EU countries, as well as Turkey, for goods to move between the countries free of any taxes/tariffs. It also means that the countries need to impose the same “external” taxes/tariffs on goods imported from other countries not in the union. This ensures that once goods enter the union, they can move freely among these countries.
Although staying in the Customs Union would ensure that significant administrative costs, such as border checks and certification of where goods come from, are not needed, staying in it would mean that the UK could not go out into the world and arrange its own trade agreements, a major motivation behind the very notion of Brexit.
The transition could also be extended by up to another two years as long as both sides agree. On top of this, the UK will only be able to leave this arrangement when the EU agrees that a better solution has been found.
This also means that the UK will stay within the EU VAT regime in this transition period (until the end of 2020), and that businesses will continue to enjoy the existing VAT simplifications, including nil-rating on cross-border business to business transactions.
This will need to be voted on in UK parliament (the vote is now due to take place next week), ratified by the EU parliament and drafted into UK legislation, all before 29 March 2019 for it to come into place – watch this space…
Please do feel free to get in touch if you have any specific questions in connection with the above.
Farley Kaye FCA
Managing Partner
For more information please contact Farley:
farley.kaye@fkgb.co.uk
052 627 7472
