The Government has published a White Paper setting out its approach to the EU Customs Bill, which was announced during the Queen’s 2017 Speech. It describes how the current customs, VAT, and excise regimes operate for cross-border transactions, why a Bill is necessary and provides some general information on what it will contain.

As well as providing for the implementation of a negotiated settlement with the EU – the Government’s preferred outcome – the Bill will also provide for the possibility of no deal being reached with the EU by the end of March 2019. The White Paper therefore also touches on how the Government would manage leaving the EU without an agreement on customs.

Under the current system, there is a high degree of harmonisation of VAT rules across the EU, including for cross-border trade in goods and services. These VAT rules are normally set by EU Directives which, unlike EU customs law, are not directly applicable and which have been implemented in the UK by domestic law (for example, the VAT Act 1994). The European Union (Withdrawal) Bill, which is currently at Committee stage in the House of Commons, will convert the body of existing EU law into domestic law, preserving laws made in the UK to implement EU obligations. However, these powers cannot be used to impose or increase taxation, which includes customs duties, excise and VAT. Therefore, the UK will need new primary legislation, irrespective of any agreements reached between the UK and EU, to create a standalone customs regime and to amend the VAT and excise regimes so that they can function effectively after the UK has left the EU.

For VAT and excise it is usual practice for primary legislation to set out a ‘framework’, and for secondary legislation to be used to set out rules concerning administration, collection and enforcement. This is the approach that the Government will also be taking in relation to the new customs regime. The impact of aspects of this legislation on individuals and organisations will therefore depend on precisely how changes are implemented in secondary legislation made pursuant to powers in the Bill, which will be shaped by the negotiations as they develop.

While the Government has committed to publishing further details in due course, it is clear that customs legislation will mostly be based on the European Union Customs Code. This means that the administration of the VAT and excise regimes will remain largely the same as today. The Bill may make provisions that allow for divergence from EU law where it is necessary or where there is a clear benefit to doing so and it should allow the VAT and excise systems to continue to function, whatever the outcome of the negotiations.

Touching on the “no deal” scenario, the White Paper states that the Bill will make provision for a goods classification system in line with the Government’s World Trade Organisation obligations. It notes the difficulty that this has the potential to create regarding how tax is collected on goods sent as small parcels and explains that the Government is exploring alternative collection mechanisms, including technology-based solutions, to help collect the taxes due on parcels valued below £135 from the business selling the goods, in order to minimise consumer burdens.

The Government is continuing to engage with stakeholders and, at the end of the White Paper, has set out a number of areas on which it is keen to collect feedback. This should be sent in via email, ideally before 3 November 2017.