As a new feature in tax.point we bring you back to basics on all things Brexit.

Going back to the very beginning – the vote

The UK people historically voted to leave the EU by referendum on 23 June 2016. Article 50 of the Treaty of Lisbon, the mechanism by which the UK must leave the EU was triggered on 30 March 2017 and gave the UK two years to leave. This means the leaving date has been set as 29 March 2019.

What is Brexit?

It’s a merge of the words Britain and exit. The term can also be found in the Oxford dictionary where it is defined as “the withdrawal of the United Kingdom from the European Union.”

How did each part of the UK vote?

The UK voted by a majority of 51.9 percent to 48.1 percent to leave the EU. More than 30 million voted in total representing 72 percent of the population. England and Wales voted to leave the EU with 53 percent and 52 percent of the votes respectively. Scotland backed to remain in the EU with 62 percent of the vote and 56 percent of Northern Ireland voted to remain.

Why was there a vote?

Since the economic recession of 2008 and the crisis in Greece, the UK people have questioned the benefits of remaining in the EU particularly when the UK economy remained relatively robust. Record levels of EU immigration into the UK and increasing EU regulation were also factors for the growing anti-EU sentiment.

What were seen as anti-European parties enjoyed a rise in popularity in the UK in 2012 and backbenchers demanded that the then Prime Minister David Cameron announce an EU referendum to help fend off the anti-EU challenge. In 2013, Mr Cameron said that he would hold a referendum on EU membership if the Conservative party won the 2015 election. Which they did and here we are.

What was the UK Government’s position at the time of the vote?

Before the referendum vote, Mr Cameron voiced support of the UK remaining in the EU by saying “The choice is in your hands but my recommendation is clear: I believe Britain will be safer, stronger and better off in a reformed Europe”.

The UK voted to leave and Mr Cameron resigned and was replaced by the now Prime Minister Theresa May. Theresa May was against Brexit during the referendum campaign but now says it’s what the British people want.

Why call a snap election?

What might have come as a surprise to most, Theresa May called an election for 8 June last year. She reportedly felt that the opposition parties would try to block her Brexit strategy and wanted to show a united front. However, the result of the election didn’t go to plan. The vote failed to give the Conservatives an overall majority in parliament so Theresa May went into government with Northern Ireland’s Democratic Unionist Party.

What’s been happening in the Brexit talks?

Brexit talks started in Brussels on 19 June 2017 and there have been several rounds of negotiations so far. Teams from the EU and the UK meet for around one week at a time. The timetable for the talks has two phases.

The aim of phase one was to reach agreement on the rights of citizens, the financial settlement the UK will need to pay on leaving the EU as well as the border in Northern Ireland. While it was hoped last October that the talks could move onto phase two where the future trade relationship would be discussed, this was delayed until December where some progress was reported.

At the moment, the EU has signed off on its negotiation stance on the future trade relationship (phase two). The UK have agreed that a hard border must be avoided on the island of Ireland and need to put forward clear proposals as to how this would occur.

The EU wants to reach an agreement on trade by October 2018 which will give six months to legislate for this agreement. All eyes are on Brussels ahead of the next EU Summit which takes place in June, as the clock continues to tick.

What is Article 50?

Article 50 of the Lisbon Treaty is the legal agreement, signed by all EU Member States, which gives any EU member the right to leave the EU. The article outlines the procedure for doing so while also instilling a two year time limit in reaching an agreement, unless all members agree to extend it. It’s only five paragraphs long.

What is a hard and soft Brexit?

The terms relate to the UK’s relationship with the EU post Brexit. A hard Brexit could see restrictions on the free movement of people and trade as well as physical infrastructure at the border between Northern Ireland and the Republic of Ireland. A soft Brexit would be seen as free movement of people and goods.

What is the Single Market?

The Single Market was completed in 1992 and represents what the EU stands for. It essentially allows all Member States to act as a single entity. It’s based on four freedoms; free movement of goods, services, money and people within the EU and its objective is to boost trade, increase employment and lower prices by eliminating tariffs, quotas and taxes on trade. The Single Market also removes certain non-tariff barriers to trade by having common regulation on packaging, safety and standards. The aim is to create a level playing field and a single market across industries by standardising regulations, work hours, health and safety among other things.

A recent example of how the Single Market operates is the EU vacuum cleaner regulations which ban the manufacture or sale of vacuum cleaners across the EU with motors more powerful than 900W. The EU Single Market rules also limit how noisy the cleaners could be and stipulated other minimum durability requirements.

In terms of free movement of people, the Single Market allows German people to live in the UK and Britons to live in Spain. But there are limits on the number of Turkish people or Russian people that can live in the UK.

The Single Market extends to Norway, Iceland, Liechtenstein and Switzerland despite these countries not being members of the EU.

What is a Customs Union?

A Customs Union is a group of countries that have agreed to allow free trade between themselves and charge the same import duties as each other to other non-member countries. Once goods have cleared customs in one country, they can be shipped to other countries in the Customs Union without further tariffs being imposed. There are 15 Customs Unions worldwide.

Turkey is in a Customs Union with the EU but is not a member of the EU. A Customs Union means Turkey and the EU can trade freely with each other without customs checks at the borders. Turkey must charge the same customs duties to countries outside the EU as the EU does and there are limitations on Turkey being free to strike its own trade deals.

What is the difference between the EU’s Customs Union and the Single Market?

The EU’s Customs Union generally only covers free trade, while the Single Market allows free movement of goods, people, services and money. Some countries outside the EU are in the Single Market but not the Customs Union. For example, Iceland is a member of the Single Market but not the EU while Turkey is outside the EU Single Market but inside the EU’s Customs Union.

What happens if the UK leaves the EU’s Customs Union?

Unless the UK agrees a free trade agreement with the EU, UK imports into the EU will suffer the EU’s common external tariff which could range from 1 percent right up to in excess of 50 percent depending on the good. There would also be checks at borders with the EU and this causes issues for Ireland and Northern Ireland.

What is a free trade area?

In a free trade area, there are no tariffs or quotas on goods or services which move freely. Parties to a free trade agreement are free to make their own trade deals with other countries. The objective is to increase trade of goods and services with each other.

For example in September last year, the EU and Canada reached agreement on free trade under an agreement entitled Comprehensive Economic and Trade Agreement (CETA). It’s estimated that this agreement will save EU businesses €590 million a year which is the amount they pay in tariffs on goods exported to Canada. CETA removes duties on 98 percent of products that the EU trades with Canada.

What if the UK leaves the Customs Union and does not agree a free trade agreement with the EU?

If this happens, trade between the UK and the EU will operate under World Trade Organisation (WTO) rules which means tariffs and quotas may apply.

The EU countries will have to treat the UK in the same way that it treats all other WTO members in that position, such as USA or Russia. This means that EU tariffs would have to apply to imports from the UK. Ireland would apply the EU tariffs to imports from the UK. It would be against the WTO’s principles for the EU not to place tariffs on UK imports after Brexit if there was no free trade agreement in place.

The same is true on the UK side. If the UK wants to apply any tariffs on any country, these will also have to apply to the EU if there is no deal.

In next month’s issue of tax.point we will cover the WTO and how customs duties work in practice.

Read all of our Brexit updates on the dedicated Brexit section of our website www.charteredaccountants.ie/Brexit.