Introduction

The current deadline for the withdrawal of the UK from the European Union is 31 October 2019 or earlier.

Brexit will have a significant impact on all businesses. The UK Government has made it clear they do not want to leave the EU without a deal but are unable to find agreement on a withdrawal mechanism to govern its future relationship with the EU. This article considers the potential impact of a no deal Brexit on a typical farming business in Northern Ireland (NI).

How could a no deal Brexit affect the farming industry?

John is an apple grower and fruit and vegetable wholesaler. His main customers are based in the Republic of Ireland (ROI). He employs two UK citizens as farm labourers throughout the year and during harvest time employs up to 20 EU Citizens (Polish and Bulgarians) for about 12 weeks.

John is concerned that a no deal Brexit will result in:

• tariffs charged on sales to customers outside the UK;
• restrictions on employing EU citizens; and
• changes to the current VAT system.

Tariffs on goods

Tariffs are charges on imports or exports of goods. Leaving the EU without a deal would mean all exports and imports automatically fall under World Trade Organization (WTO) rules, resulting in tariffs payable by the purchaser.

If tariffs are charged on imported goods, locally produced goods may be cheaper in the UK than the equivalent goods imported from the EU or another country.

In a no deal scenario the UK Government currently states:

• They do not propose to charge tariffs on most goods imported from the EU;
• However, temporary tariff rates will apply for certain imports (meat, poultry, some dairy products and fertiliser) to the UK from the EU and the rest of the world to help provide support for UK producers;and
• These temporary tariffs will not apply to the land border between NI and the ROI. HMRC plan to use intelligence to identify distinctions in the movement of goods across the border for the main purpose of avoiding customs duty (by diverting these goods through ROI and NI).

Therefore ROI farmers could sell the majority of their goods to NI without tariffs being charged. However, this runs contrary to WTO rules and a complaint could be lodged to the WTO by businesses detrimentally impacted by this approach.

Tariffs will, however, be charged on goods exported from the UK to EU member states. The rates vary for different types of goods and can be a significant irrecoverable cost to EU businesses.

So, how will this impact John?

• Goods imported from the EU other than from the ROI, e.g. tree posts, will not be subject to tariffs unless they are goods liable to the temporary tariff rates. If they are goods produced in the ROI then no tariffs will be charged due to the land border exemption.
• Tariffs will be charged on his exports, i.e. 13.60% for carrots & turnips, 7.20% for apples. For every £100 of apples John sells to ROI, the ROI customer would have to pay £7.20 in tariffs to the Revenue Commissioners.
• John’s produce will be less competitive compared to other EU wholesalers. This may result in his ROI customers sourcing produce elsewhere in their local and EU market.
• John may have to look for an alternative markets in the UK and outside the EU.

Work force/employees

According to the Office for National Statistics, 99% of seasonal agricultural workers are from EU countries and it is unlikely this workforce can be replaced from the UK labour market.

If the UK leaves with a deal, it is proposed that there will not be any changes until 2021.

If the UK leaves without a deal, citizens of any other EU, EEA country or Switzerland will be able to enter the UK to work and study without needing a visa. However, a government proposal to end free movement is currently awaiting approval. If approved, EU/EEA/Swiss citizens will only be able to enter and remain in the UK for up to 3 months without a visa. To remain in the UK for longer than this they will need to apply for European Temporary Leave To Remain status which is valid for 3 years. EU Citizens will be subject to criminal and security checks before permission is granted.

John’s main concerns are:

• his ability to source seasonal workers for harvest times;
• extra costs involved in sourcing seasonal workers;
• time and resources on additional checks required to ensure employees are eligible to work in UK
• obtaining the correct paperwork from the authorities; and
• risk of potential civil and criminal penalties for employing illegal workers as a result of unintended failure to be fully complaint with required paperwork.

VAT

If the UK leaves the EU without a deal, the government aims to keep VAT procedures as close as possible to what they are currently, to provide continuity and certainty for businesses.

Under the current rules:

1. EU exports
• For VAT registered customers, goods are zero-rated, i.e. UK VAT is not charged at the point of sale.
• For non-VAT registered customers, either UK or EU VAT is charged, subject to the distance selling rules.
• EC sales lists and Intrastat must be completed.
• Evidence must be retained to prove that the goods have left the UK.

2. EU imports
• No EU or UK VAT is charged by the supplier or at point of entry to the UK.
• UK businesses account for EC acquisitions on their next VAT return using the reverse charge mechanism.

In the event of a No deal Brexit:

1. EU exports
• UK businesses would zero-rate sales to both EU businesses and consumers.
• Evidence to be retained to prove that the goods have left the UK.
• Customs forms replace EC sales lists and Intrastat.

2. EU imports
• Imports will be subject to UK VAT at point of entry.
• Current rules with regard to postponed accounting treatment for import VAT on EU and non-EU imports will still apply, avoiding an immediate up-front cash-flow impact.

Therefore, John would continue to zero-rate any sales to ROI customers provided he obtains the relevant evidence that the goods left the UK but he would have to complete customs forms after Brexit. The ROI customer would then account for VAT when the goods arrive in the ROI.

Subsidies

In 2019, EU funding for rural payment schemes including the Basic Payment Scheme will continue, regardless of whether the UK leaves the EU without a deal. To get payments, John needs to follow the same standards as he does now. Where relevant, this will include on-site inspections of UK farms. The Rural Payments Agency UK will continue to administer the schemes. After 2020 there is no guarantee from the government that subsidies will continue which will affect farmers who rely on subsidies as a vital source of income.

Other considerations

There are many consequences of leaving the EU which cannot be covered by this article. Some of the other issues that John would also have to consider:

• Potatoes – The EC has informed the UK that they are not considering the application for third country equivalence status for potatoes before the withdrawal negotiations have been completed. In the event of a no deal Brexit this would mean UK potatoes would not be able to enter the EU, which is currently an export market for NI producers.
• Driving in the UK – The Government has confirmed that rules for driving in the UK will not change after Brexit. Therefore, John’s EU employees will be able to drive farm machinery on UK roads following Brexit if currently legally qualified to drive.
• Driving in the EU – John must ensure his insurance provider has issued him with a “Green Card” to drive any vehicle or farm machinery on the roads in the EU.
• EU VAT refunds – Like many businesses, John frequently purchases diesel in the ROI and then claims the VAT back using the EU VAT refund process. This will be replaced by a non-EU member state refund process. Reclaiming VAT on certain purchases such as diesel will be based on certain conditions being met such as carrying out business in that non-EU member state which may impact on the recovery of VAT.

How can John prepare for No Deal Brexit?

John must be prepared for change!

While the UK government argues that it has enough time to get the withdrawal agreement passed, given the current political deadlock, it makes good business sense to prepare for a no deal Brexit. John should take the following steps immediately to minimise disruption to his business:

• Register for an Economic Operator Registration and Identification (EORI) number in the UK and in the ROI;
• Consider an agent to help with completing import/export forms or do the forms himself;
• Consider registering for the “Transitional Simplified Procedures” (TSP) which enables registered importers to defer making customs declarations and paying duty.

For John, the main impact of a no deal Brexit will be:

• Tariffs charged on his customers outside the UK, making his produce more expensive and potentially leading to a loss of customers. John should consider alternative markets for his produce and/or look to reduce his production costs to counteract potential tariffs.
• ROI and other EU competitors will be able to compete with John in the UK market tariff free.
• EU citizens working in UK for longer than 3 months will be required to apply for a visa. John should consider alternative sources of labour such as agency workers, but this will be more expensive.
• Additional compliance checks before he can employ EU citizens.
• No longer a requirement to complete EC sales list or Intrastat returns.
• Requirement to complete custom forms.
• Potatoes cannot be exported to the EU.
• Extra time and resources required to deal with the extra paperwork.
• Costs of dealing with extra paperwork.

Conclusion

Lastly, John is not on his own. There is support available from his Chartered Accountant, Tax Advisor and other sources such as Invest NI, the Department of Business and Enterprise and Innovation and InterTrade Ireland, who provides funding to partially offset the costs of Brexit planning and advices from registered advisors.

Ben McAlister, CavanaghKelly, who have offices in Dungannon, Omagh, Enniskillen and Belfast.