New Cross-border Trade Bill to establish UK customs regime

The Taxation (Cross-border Trade) Bill and explanatory notes were introduced to the House of Commons on 20 November 2017. The Bill aims to give the government the ability to establish a standalone customs regime, and ensure that VAT and excise legislation operates effectively, following the UK’s withdrawal from the European Union (EU) in 2019.

As the rules governing customs are mostly in EU law that is directly applicable in the UK, and existing UK legislation is insufficient to establish a standalone customs regime, leaving the EU will mean that the UK will require new domestic legislation.

The Taxation (Cross-border Trade) Bill contains 56 clauses and 9 schedules (with 70 pages of Explanatory Notes and 174 pages of notes on the delegated powers). It does not presuppose any particular outcome from the negotiations. In assessing the options for the UK’s future customs relationship with the EU (and therefore, how the government uses the powers in the Bill), the government will be guided by what delivers the greatest economic advantage to the UK, and by three strategic objectives:

  • ensuring UK-EU trade is as frictionless as possible
  • avoiding a hard border between Ireland and Northern Ireland
  • establishing an independent international trade policy

The government previously set out its plans to legislate for the UK’s future customs, VAT and excise regimes in its Customs Bill White Paper.

The Bill is a Bill required to be brought in by Ways and Means resolutions, and all of the provisions in the Bill are required to be covered by these resolutions.

There are two Ways and Means resolutions:

  • the first resolution authorises the Bill to provide for the charging of import and export duties, to provide for the administration and enforcement of these duties, and to make provision in relation to customs duties in connection with the UK’s withdrawal from the EU
  • the second resolution authorises the Bill to amend the law relating to VAT and excise duty on goods in connection with the withdrawal of the UK from the EU. This resolution prevents certain provision being made in relation to zero-rates or reduced rates of VAT, or exemptions, refunds or new reliefs from VAT.

Whatever the outcome of negotiations with the EU, the UK will need to legislate for a new Customs regime to be in place by March 2019. The new regime must provide for the tariff-related aspects of the UK’s future trading framework. It will need to allow sufficient flexibility to give effect to a range of potential outcomes from negotiations with the UK’s European partners, including an implementation period, and implementation of a new Customs regime in the event there is no negotiated agreement.

In relation to VAT and excise, it is necessary to amend existing legislation as a consequence of the UK’s withdrawal from the EU with or without an agreement in order to ensure that these regimes work appropriately on withdrawal.

The government’s approach is to ensure that legislation is in place to establish a standalone UK customs regime, which will include the facility to vary the amount of import duty, including provision as to how it may be varied in prescribed circumstances. The legislation will also provide for changes to the VAT and excise regimes so that they can operate as required upon exit from the EU.

The Bill makes legislative changes and provides sufficient powers to address a contingency scenario if the UK leaves the EU without a negotiated agreement, and contains powers (or amends existing ones) that will allow the government to give effect to a range of negotiated outcomes. This will give the government the ability to ensure that the UK withdraws from the EU in as smooth and orderly way as possible.

To these ends, the Bill creates a new legislative framework for customs, and amends primary legislation for VAT and excise. It also contains powers to provide for the detail of the new customs regime, for changes to the domestic excise regime for goods, and for dealing with particular aspects of the VAT regime. Moreover, it contains a power to make appropriate provision in consequence of or otherwise in connection with withdrawal for all three regimes.

In particular, for customs, the Bill provides for (where appropriate):

  • a charge to import duty, which will be chargeable on the importation of non-domestic goods;
  • the rate of duty, the circumstances under which it might be increased or decreased (including in connection with trade remedies), and when it will become due;
  • the collection, administration and enforcement of import duty;
  • the UK to give effect to an arrangement establishing a customs union with other territories; and
  • a power to impose a charge to export duty on goods exported from the UK.

The Bill will also:

  • abolish the concept of acquisition VAT on goods moving to the UK from the 27 remaining EU member states, extend the application of import VAT and amend the VAT Act 1994 and other enactments in relation to VAT in consequence of or otherwise in connection with the UK’s withdrawal from the EU and other changes made by the Bill;
  • amend enactments relating to excise duty on goods in consequence of or otherwise in connection with the UK’s withdrawal from the EU and other changes made by the Bill;
  • confer a new general regulation-making power upon HMRC in relation to excise duties on goods;
  • allow the Treasury to make appropriate provision relating to VAT, excise and customs in consequence of, or in connection with, the withdrawal of the UK from the EU;
  • include a standard power to make consequential provision including transitional, transitory provision and savings; and
  • amplify existing powers to make subordinate legislation to permit supplementary, incidental or consequential provision and transitional or transitory provision or savings to be made, and create a new power to commence subordinate legislation by commencement regulations. In both cases, the powers are exercisable where it is appropriate in consequence of, or otherwise in connection with, the withdrawal of the UK from the EU.