The Government has published a summary document explaining the approach to preparing the UK for a “no-deal” Brexit in order to minimise disruption and ensure a smooth and orderly exit in all scenarios. The Government has said that acceleration of the preparations does not mean a no-deal is more likely and that the Government has been making preparations for 2 years. The Government and EU have both said that negotiations are on track to have a deal by October 2018.

A series of specific technical papers have been published, with others (including one on NGOs) due to follow in September. Papers that are likely to be of specific interest to CTG members include:

VAT for businesses

The UK will continue to have a VAT system after it leaves the EU. The revenue that VAT provides is vital for funding public services. The VAT rules relating to UK domestic transactions will continue to apply to businesses as they do now.

If the UK leaves the EU on 29 March 2019 without a deal, the government’s aim will be to keep VAT procedures as close as possible to what they are now. This will provide continuity and certainty for businesses. However, if the UK leaves the EU with no agreement, then there will be some specific changes to the VAT rules and procedures that apply to transactions between the UK and EU member states. The Government has taken decisions and actions where necessary in order to mitigate the impacts of these changes for businesses.

The note summarises the main VAT issues that will affect UK businesses trading with the EU in goods and services if the UK leaves the EU without an agreement on 29 March 2019. Although no changes will be made before then, this note highlights the VAT changes that businesses will need to prepare for when importing goods from the EU, exporting goods to the EU, supplying services to the EU, and interacting with EU VAT IT systems such as the VAT Mini One Stop Shop (MOSS).

There are no references to rates or reliefs and the note is in the main limited to practicalities relating to the operation of the VAT system – there is no assessment on any wider changes that may be possible.

State aid

The Government will create a UK-wide subsidy control framework to ensure the continuing control of anti-competitive subsidies. The EU state aid rules will be transposed into UK domestic legislation under the European Union (Withdrawal) Act. This will apply to all sectors; and will mirror existing block exemptions as allowed under the current rules. The Competition and Markets Authority will take on the role of enforcement and supervision for the whole of the UK. The UK government will continue to work with the devolved administrations to ensure the new state aid regime works for the whole of the UK.

The new regime would apply to all businesses with operations in the UK – whether UK, EU or third country based.

From that point:

• UK public authorities will need to notify state aid to any undertaking, through either the block exemption or through a full notification to the Competition and Markets Authority instead of the European Commission
• Existing approvals of state aid, including block exemption approvals, will remain valid and will be carried over into UK law under the Withdrawal Act
• Any full notifications not yet approved by the Commission should be submitted to the Competition and Markets Authority.

Trading with the EU (including customs and excise procedures)

If the UK left the EU on 29 March 2019 without a deal there would be immediate changes to the procedures that apply to businesses trading with the EU. It would mean that the free circulation of goods between the UK and EU would cease.

For businesses trading with the EU, the impacts would include:

• businesses having to apply the same customs and excise rules to goods moving between the UK and the EU as currently apply in cases where goods move between the UK and a country outside of the EU (customs duty may also become due on imports from the EU – see the separate ‘Classifying your goods in the UK Trade Tariff if there’s a no Brexit deal’ technical notice). This means customs declarations would be needed when goods enter the UK (an import declaration), or when they leave the UK (an export declaration). Separate safety and security declarations would also need to be made by the carrier of the goods (this is usually the haulier, airline or shipping line, depending on the mode of transport used to import or export goods).
• the EU applying customs and excise rules to goods it receives from the UK, in the same way it does for goods it receives from outside of the EU. This means that the EU would require customs declarations on goods coming from, or going to, the UK, as well as requiring safety and security declarations
• for movements of excise goods, the Excise Movement Control System (EMCS) would no longer be used to control suspended movements between the EU and the UK. However, EMCS would continue to be used to control the movement of duty suspended excise goods within the UK, including movements to and from UK ports, airports and the Channel tunnel. This will mean that immediately on Importation to the UK, businesses moving excise goods within the EU, including in duty suspension, will have to place those goods into UK excise duty suspension, otherwise duty will become payable.

After the UK leaves the EU, in the event of a ‘no deal’ scenario, businesses importing goods and exporting from the EU will be required to follow customs procedures in the same way that they currently do when importing or exporting goods from a country outside the EU. This means that for goods entering the UK from the EU an import declaration will be required, customs checks may be carried out and any customs duties must be paid.

Before importing and exporting goods from the EU, a business will need to:

• register for an UK Economic Operator Registration and Identification (EORI) number. Businesses do not need to do anything now. There will be further information available later in the year. For those businesses that sign up for the EU Email updates, they will be contacted when this service becomes available
• ensure their contracts and International Terms and Conditions of Service (INCOTERMS) reflect that they are now an importer
• consider how they will submit import declarations, including whether to engage a customs broker, freight forwarder or logistics provider (businesses that want to do this themselves will need to acquire the appropriate software and secure the necessary authorisations from HMRC). Engaging a customs broker or acquiring the appropriate software and authorisations form HMRC will come at a cost
• (for imports) decide the correct classification and value of their goods and enter this on the customs declaration.

Government’s guarantee for EU-funded programmes

If there is no deal by March 2019 the UK will leave the EU budget and will no longer receive funding from EU projects such as the European Regional Development Fund and Horizon 2020. However, earlier in the year the Chancellor announced that the Government will guarantee EU projects agreed before leaving the EU.

The guarantee will cover:

• Full 2014-20 Multiannual Financial Framework allocation for structural and investment funds
• Payment of awards where UK organisations successfully bid to the European Commission while we remain in the EU
• Payment of awards under successful bids where UK organisations are able to participate as a third country in competitive grant programmes until the end of 2020
• The current level of agricultural funding under CAP pillar 1 until 2020

Horizon 2020

• The guarantee by the Government does not cover funding for organisations from other countries who are in consortia with UK participants. The Government is aware of certain scenarios where a UK participant is leading a consortium and distributes funding to the other members, it will seek discussions on how to address this.
• The discussions will also need to include where the UK change in status to a third country could lead to concerns about ongoing compliance with Horizon 2020.
• The guarantee now also covers funding for successful bids where UK organisations are able to participate as a third country in competitive EU grant programmes up until the end of 2020.
• Third country participation does not extend to some Horizon 2020 calls including European Research Council grants, some Marie Sklodowska-Curie Actions and the SME instrument. The Government is considering what other measures may be necessary to support UK research and innovation in the event of a no deal.
• Beyond 2020 the UK remains committed to ongoing collaboration in research and innovation and wants work with the EU on a mutually beneficial outcome, which was reflected in the recent Government proposal to form a co-operative accord with EU on science and innovation.
• This is part of the Government commitment to R&D spending to reach 2.4% of GDP by 2027.
• The Government is working in partnership with UK Research and Innovation to develop a new International Research and Innovation Strategy.
• UK Research & Innovation (UKRI) will be developing systems to ensure payments to beneficiaries of Horizon 2020 funding can continue. Current UK recipients of Horizon 2020 funding will soon be invited to provide initial data about project(s) on a portal hosted on GOV.UK. The portal is designed to ensure that UKRI has information about projects and participants in order to deliver the underwrite guarantee if required. UKRI will use the contact details provided by current recipients to inform them of the next steps in the process.

Delivering humanitarian aid programmes

If there is a no deal, European Civil Protection and Humanitarian Aid Operations could either require UK organisations to leave their projects or terminate funding to UK organisations, of which neither option would be acceptable to the UK Government.

The risk of termination of ECHO funding, which would result in organisations needing to terminate their projects, is discouraging organisations from applying for funding and has had an impact on UK ECHO funding for months.

To avoid instability, the Government is committing to funding the post-March 2018 outputs of any programme funded by the ECHO’s core budget, where a UK organisation is the lead consortium power or sole implementer.

This commitment is subject to the following principles:

Applicable funding:

• this commitment only applies to new applications for ECHO funding between the date of this notice and 29 March 2019
• the UK government will not reimburse any programme activity that was undertaken prior to 30 March 2019
• this commitment is only applicable to programmes financed by core ECHO funding
• this commitment applies only to programme outputs delivered by UK-based NGOs

Requirements for receiving funding assurance:

• organisations must provide evidence for their status as a UK-based entity by submitting their registration number and address
• organisations must notify DFID on the date on which it applies for the ECHO grant in question and again on the date on which ECHO awards the grant
• at that time the organisation must provide a breakdown of expected amount, profile and timeline of spend agreed with ECHO, clearly indicating all chargeable work up to 29 March 2019
• organisations must give DFID sight of draft grant agreements prior to signing

DFID will reimburse only UK-based organisations that are either:

• consortium lead for the programme in question
• the sole implementer
• sub-contractors forming part of UK-led consortia

Any project components sub-contracted to non UK-based sub-contractors forming part of UK-led consortia are ineligible for reimbursement under this commitment

Requirements for receiving funding:

• organisations must have successfully undergone DFID due diligence and must comply with all standard DFID Accountable Grant clauses
• organisations must provide evidence for the funding disbursements already received from ECHO prior to 30 March 2019 and confirmation that all chargeable work under the grant to this date has been paid for by ECHO
• the government reserves the right to apply the same delivery, safeguarding and fiduciary requirements and expectations as set out by ECHO, and to terminate or withhold funding if these are not met.