This note sets out the rules regarding the tax treatment of alcohol and tobacco purchases made by passengers, which have been amended as a consequence of the UK's exit from the EU Single Market from 1 January 2021.
Documents to download
Customs (Cross-border Trade) Bill (1 MB, PDF)
This Commons Library briefing analyses the Taxation (Cross-border Trade) Bill which was published on 20 November 2017. The Bill is sometimes referred to as “the Customs Bill”. The Bill is one of a series of “Brexit Bills” intended to adjust UK legislation for Brexit, in addition to the European Union (Withdrawal) Act (EUW Act). Together with the Trade Bill, this Bill is intended to allow the UK to continue its existing trade policy as far as possible immediately after Brexit.
The purpose of the Bill is to allow the Government to create a functioning customs, VAT and excise regime for the UK after Brexit. The Bill also contains trade defence measures to protect UK industry from unfair competition from abroad and provisions on trade preferences which allow imports from developing countries to benefit from reduced customs duties. The Bill follows publication of a Customs White Paper in October 2017 and a Future Partnership Paper on customs in August 2017.
The founding resolutions for the Bill were debated on 20 November 2017. The Bill received its Second Reading in the House of Commons on 8 January 2018 and its Committee Stage between 23 January and 1 February. The Bill was not amended at Committee Stage. The remaining Commons stages of the Bill will take place on Monday 16 July 2018. A number of amendments have been put forward for Report Stage, including some on the issue of the customs union. There is further information on the customs union issues in a separate Library Briefing Paper, Brexit: Customs and Regulatory Arrangements.
Customs duties are taxes on imports. They are sometimes referred to as tariffs or import duties. As an EU Member State and part of the EU Customs Union, the UK’s customs duties are set by the EU. There are no customs duties on trade between EU Member States and EU Member States operate a common external tariff on imports from outside the EU. Customs policy is an exclusive competence of the EU.
The Government has set out two options for future customs arrangements with the EU: a ‘customs partnership’ and a ‘highly streamlined customs arrangement’. Under the customs partnership, the UK would apply the EU’s tariffs on goods imported into the UK but intended for onward shipment to the EU. The UK would set its own tariffs on imports intended for the UK market. The highly streamlined customs arrangement or ‘maximum-facilitation’ (‘max-fac’) option relies on technological solutions and ‘trusted trader’ schemes to make trade with the EU smoother. At the time of writing (early July 2018), the Cabinet was considering a third customs plan. A Brexit White Paper is expected to be published very soon.
There is relatively little domestic UK law on customs. Most of the rules are in EU law which is directly applicable in the UK. The Customs White Paper explained that “the powers in the EUW Act to deal with deficiencies arising from withdrawal and to implement the withdrawal agreement cannot be used to impose or increase taxation, which includes customs duties, excise or VAT.” New primary legislation is required.
The Bill will allow the Government to create a standalone UK customs regime by ensuring that the UK can, for example, charge customs duty on goods, define how goods will be classified to determine the amount of duty to be paid and set rates of customs duty.
The Bill is being presented before the outcome of the negotiations with the EU is known. It is therefore designed to be flexible enough to accommodate a range of negotiated outcomes, including an implementation or transitional period, but also a “no deal” scenario.
The Government’s intention is that the new UK customs regime should operate in a similar fashion to the current EU system, in order to provide continuity. The Government is aiming for trade with the EU to be as frictionless as possible. This will, however, depend on the outcome of negotiations with the EU. Depending on the outcome of these negotiations, businesses which currently trade only with the EU may face customs duties and related customs procedures for the first time. The Bill will allow for divergence from EU law where the Government believes this is necessary or there is an economic benefit.
Trade defence measures (sometimes referred to as trade remedies) allow a country to take steps against unfair competition from dumped or subsidised imports. Trade remedies often take the form of additional tariffs, over and above the standard tariff, imposed on the dumped or subsidised goods. These are referred to as anti-dumping and anti-subsidy (or countervailing) duties.
The trade remedies regime is currently implemented at EU level. The EU has over 100 measures in place and has taken action against imports of steel from China, for example.
The Bill puts in place a UK trade remedies system to carry out investigations into allegations of dumping and subsidy and to propose remedies. This new UK system will replace the EU system and will be implemented by new public body, the Trade Remedies Authority (TRA). The Trade Bill establishes the TRA.
The Government’s approach to trade remedies was set out in the Trade White Paper. This said that the Government was a supporter of free and fair trade. It noted that trade remedy measures “form an important part of a rounded trade policy” and can be used to ensure fair trade. The White Paper also said that the trade remedies regime would need to take into account the interests of both the domestic industry affected by any dumped or subsidised imports and the users of these products whose costs would be increased by trade remedy measures.
Some industry groups have criticised the Bill. For example, UK Steel, which represents an industry which has been particularly affected by dumping, said that the Bill “as currently drafted falls seriously short of what the steel industry, and many other UK industries, are seeking.” Concerns have also been expressed about the lack of detail in the Bill and whether it will offer the same protection as the EU regime. There is also the issue of whether current EU trade defence measures will continue to apply to the UK after Brexit. The Government wishes to continue those which matter to UK businesses and has issued a call for evidence. There are differing views on the ease of “grandfathering” the EU trade defence measures.
The International Trade Committee published a report on the TRA in May 2018. This said that the Bill (and the Trade Bill) lacked detail. The Committee also made a number of recommendations, including amendments to the Bill.
The Bill would allow the UK to put in place its own system of trade preferences for developing countries, replacing the EU system that currently applies. This would allow the UK to continue to apply reduced tariffs to certain goods when they are imported from these countries. The Bill also allows for trade agreements with developing countries to replace those that the EU has. The value of these arrangements to certain developing countries and sectors is substantial. It has been estimated that the value of the current trade preferences scheme to the Least Developed Countries alone is around £323 million per year.
VAT and excise duties
Taxation is very largely a Member State competence. The major exception to this generalisation is indirect tax: primarily VAT – for which there is a substantive body of EU law establishing common rules across Member States – and, to a lesser extent, excise duties (duties charged on alcoholic drinks, hydrocarbon oils and tobacco products). It has long been recognised that the harmonisation of indirect taxes across Member States is an essential element to the achievement of an effective Single Market. The Bill provides for the EU concept of acquisition VAT (for business-to-business intra-EU movements) to be abolished so that import VAT is charged on all imports from outside the UK. In addition it will allow the VAT and excise regimes to continue to function whatever the outcome of the negotiations.
The Bill gives the Government considerable powers to use secondary legislation (including a number of Henry VIII powers). The Treasury has published a Delegated Powers Note (174 pages long) which sets out the parts of the Bill which confer such powers and an explanation of why this has been proposed. All of the Parliamentary procedures set out in the Delegated Powers Note are for the House of Commons only as the Bill is about taxation.
The Government argues that “framework” primary legislation with supplementary secondary legislation is usual practice for indirect taxation. The arrangements need to be flexible enough to deal with different circumstances and respond to changes. The precise detail of some provisions may not be known until the UK’s future relationship with the EU is clarified. Furthermore, the Government argues that secondary legislation is appropriate for the customs tariff, due to its size. The EU customs tariff contains more than 17,000 different goods and around half a million separate customs codes are needed once reduced tariffs for certain trading partners are taken into account.
The House of Lords Delegated Powers and Regulatory Reform Committee published a report on the Bill in January 2018. This raised a number of concerns about the use of delegated powers and described them as a “massive transfer of power from the House of Commons to Ministers of the Crown”. The Committee made a number of recommendations, including less use of the “made affirmative” procedure, use of an affirmative rather than a negative procedure in a number of clauses and the use of sunset clauses. The report was also critical of the use of public notices to make law, describing this as “highly unusual” and saying that “such provisions should attract strict surveillance by Parliament”.
The House of Lords Constitution Committee has also published a short report on the Bill. This noted that the Bill raised “significant and novel concerns”. It also said that while Brexit may require complex legal changes to be implemented quickly and flexibly, “even in light of this, the discretionary powers in the Bill are overly broad and subject to limited Parliamentary scrutiny”.
Similar concerns were raised by UK Steel. It said that the Bill will mean that “key aspects of the UK’s trade legislation will evade proper Parliamentary scrutiny”.
Documents to download
Customs (Cross-border Trade) Bill (1 MB, PDF)
The National Security and Investment Bill 2019-21 was announced in the Queen’s Speech on 19 December 2019. It was introduced in the House of Commons on 11 November 2020. Its Second Reading took place on 17 November 2020, with remaining stages scheduled for Wednesday 20 January 2021.
This briefing summarises amendments made to the Trade Bill 2019-21 in the House of Lords, ahead of amendments coming back to the Commons for the start of ping-pong.