London : The United Kingdom is due to leave the European Union on March 29, under terms still being sorted out in London, Brussels and across the EU27 countries. This is called Brexit.
Brexit is far more than an economic or cultural matter between Brits and Europeans. The little understood “backstop” reflects a determined effort to maintain peace and an open border between Northern Ireland and the Irish Republic, after eight centuries of bitter religious hostility between Catholics and Protestants. The hostility began with the Anglo-Norman invasion of Ireland in 1167, and continued off and on all the way up to the Good Friday Agreement of 1998.
Israelis and others should note several things. First, peace is a prize that may take considerable time to achieve. Second, the UK has had to resort to extreme contingency measures, but uncertainty persists. Third, Israel and the UK have just signed a free-trade continuity agreement.
The trade continuity agreement (“Trade and Partnership Agreement”) will see British businesses and consumers benefiting from continued free trade with Israel after Britain leaves the EU.
Industry and Economy Minister Eli Cohen signed the agreement with UK International Trade Secretary Liam Fox in Tel Aviv on February 18, 2019.
The news has been welcomed by business groups, including the Israel-Britain Chamber of Commerce, which says it will help to support jobs and ensure continuity for both British businesses and consumers, who should be able to continue trading without disruption.
The EU-Israel free-trade agreement, known as the Association Agreement, was signed in 1995. The new UK-Israel deal is intended to replicate the existing Israel-EU trading arrangements as far as possible. It will come into effect as soon as the implementation period ends in January 2021, or on March 29, 2019, if the UK leaves the EU without a deal.
The trading relationship between the UK and Israel is said to be worth £4 billion per year.
Consumers in the UK should continue to benefit from lower prices on goods imported from Israel, such as pharmaceutical products, with Israeli companies acting as major suppliers to the National Health Service. The deal may also provide protection for intellectual property rights and maintain high trading standards.
The British vehicles sector could avoid up to £9 million a year in tariff charges on their exports that would apply if the agreement wasn’t in place, while machinery and mechanical appliance exporters could avoid up to £5m. a year.
Does this mean that American, Brazilian or Chinese companies can get UK customs breaks with an Israeli company? Probably not, the products must meet certain Israeli sourcing rules in the agreements.
UK-EU case study
British business may soon suffer. For example, suppose a UK manufacturer that purchases raw materials from the EU will start paying customs duty on its purchases of, say, 6% instead of 0% until now. That is alarming if its pre-Brexit net profit margin was, say, 12%.
UK Brexit precautions
The UK government has published advice to British businesses about dealing with Brexit, especially if there is no deal with the EU by March 29.
The government may introduce postponed accounting for import VAT on goods brought into the UK. This means that UK VAT registered businesses importing goods to the UK will be able to account for import VAT on their VAT return, rather than paying import VAT on or soon after the time that the goods arrive at the UK border. This will apply both to imports from the EU and non-EU countries. But customs declarations and the payment of any other duties will still be required.
For parcels exported to the UK valued up to £135, a technology-based solution may allow UK VAT (20%) to be collected from the overseas business selling the goods into the UK. Overseas businesses will charge VAT at the point of purchase and will be expected to register with an HM Revenue & Customs digital service and account for VAT due.
Customs duty becomes payable by the UK purchaser if the value of the goods is over £135. Under international postal agreements, the sender (e.g. an Israeli sender) must complete a customs declaration (form CN22 or CN23) which in most cases should be affixed to the package. Any post office should be able to give advice to the sender.
The UK is set to remain in the Common Transit Convention after Brexit. The CTC is used for moving goods between the EU member states, the EFTA countries (Iceland, Norway, Liechtenstein and Switzerland) as well as Turkey, Macedonia and Serbia (Israel is apparently not listed).
The CTC and its supplementary convention – the Convention on the Simplification of Formalities in the Trade of Goods – may remove the need for intermediate import/export declarations when transiting across multiple customs territories.
As always, consult experienced tax advisers in each country at an early stage in specific cases. Also consult customs agents on trading matters.