There was an almost audible collective sigh of relief among Irish firms that trade with the UK when it emerged the government there had decided on another postponement of full border controls. The controls should have been enforced since January 1st of this year but the operative date has now been put back once again.
Mazars VAT director Alan McManus believes this latest deferral has come about for purely practical reasons. “The UK doesn’t have the level of physical or human resources required to implement full customs controls at the ports for goods coming in from Ireland,” he points out. “There is huge pressure on the civil service there as a result of Covid-19 and a shortage of technical expertise generally. However, the extension has obvious practical benefits for Irish goods exported into the UK.”
That is not to say that Brexit hasn’t had an impact. Supply chains have been subject to disruption throughout 2021. Irish businesses encountered delays in the release of goods or unexpected tariff cost as a result of the application of the rules of origin. For example, Irish bakers found that much of the flour imported from the UK contained more North American wheat than permissible to enable it to be classified as British under the trade and co-operation agreement.
Shortages
“Other factors than Brexit also contributed to shortages in certain sectors, of course, such as the microchip shortage, container-storage challenges and climate issues.” he adds.
It hasn’t all been bad news, however, according to McManus. “On the positive side, while disruptions to supply chains were encountered owing to Brexit and a range of other factors including Covid-19, continuity of supply was maintained by and large by the ability of businesses to develop workarounds,” he says.
The long-term cost impact of Brexit should not be underestimated.
“There is no doubt that one of the key impacts of Brexit and those other global trends is inflation,” says McManus. “While some observers may believe that the inflationary trend will be relatively short term and peak in 2022, the impact of the additional administrative burden, supply-chain shortages and delays arising from Brexit has generated increased costs.
Part of the increased administrative burden includes the accurate completion of customs clearance documentation. To put that increase in context, end-year figures published by Revenue show that it dealt with 25.4 million customs declarations on goods imported from abroad during 2021, a 14-fold increase on the 1.8 million declarations processed the previous year.
“Inconsistent adherence to rules or failure to complete data accurately online has caused errors in the customs-clearance reporting,” McManus points out. “This has resulted in supply disruption or delays, contributing to increased risk of tax-audit scrutiny. In practical terms, one of the main issues that has given rise to increased audit risk and heightened scrutiny from the Irish Revenue Commissioners is incorrect use and reporting of postponed VAT accounting.”
McManus also makes the point quite forcefully that just because goods have managed to get through in either direction doesn’t mean it’s the end of the matter. “In the early days the customs authorities were supportive in facilitating the green-channel movement of goods where possible to prevent delays at the ports. But just because the goods get through doesn’t mean it’s over. For example, if there is an issue with the clearance documentation or import VAT reporting, the responsible party will have a potential risk problem stored up with the tax administration. Even if all trading parties in the supply chain are VAT registered, audit risk or penalties can arise.”
Northern Ireland
And then there is the matter of the Northern Ireland Protocol. “There has been significant increase in the use of Northern Ireland as part of a routing solution to supply chain challenges. In the absence of political agreement on terms, incidences of non-compliance and irregularly occur, this gives rise to continued business uncertainty and sanction risk.”
Uncertainty continues to be the dominant theme one year on from Brexit, McManus concludes. “Negotiations continue on the trading arrangements between the EU and UK and the continued absence of agreement is not good for business already dealing with Covid-19 and other global challenges affecting trade. Businesses in the UK and Europe have demonstrated robust capacity in addressing the Brexit challenge to date, but close attention will need to be maintained.”
Brexit checklist
Mazars has compiled a Brexit checklist to assist companies trading with the UK:
1. Visit and understand the terms of delivery as governed by Incoterms (international commercial terms) between supplier and customer.
2. Consult with your tax adviser about your local tax and VAT registration obligations arising from cross-border trading with goods.
3. Appoint a reputable customs agent to assist with the process clearance and submissions of your customs declarations to Revenue/ HMRC.
4. Confirm whether they are willing to act as a fiscal agent/representative in making payment of VAT and duties on your behalf.
5. Research and provide the necessary supplementary documentation to support your customs declaration depending on the origin and profile of goods being transported.
6. Register for an economic operators registration and identification (EORI) number
7. Activate your trader account number (TAN) to facilitate making and the reporting of relevant payments.