By Fergus Colquhoun, Trainee Solicitor

“EXCISE, n. – A hateful tax levied upon commodities, and adjudged not by the common judges of property, but wretches hired by those to whom excise is paid.”

A Dictionary of the English Language, Dr Johnson (1755)


The Government published a white paper on 9th October dealing with the future of the United Kingdom’s (UK) customs, VAT, and excise arrangements, prior to the beginning of the fifth round of negotiations between the UK and the European Union (EU) on Brexit.

Customs duty and import VAT are payable when goods enter the country, and are calculated on the basis of the value of the goods.

Excise duties are payable on the provision or manufacture of certain goods and services (examples include Air Passenger Duty and Tobacco Duty), but can also be charged on entry to the country. Unlike customs duties and VAT, the rate of excise is not determined by the value of the goods, but their quantity. Historically, excise duties have been used to discourage undesirable or immoral behaviour, hence the imposition of duties on gambling, alcohol, and tobacco, often at very high rates.

The current position

At present, the UK’s customs regime is largely a matter of directly applicable EU law, as a result of which domestic legislation dealing with the area has been largely unnecessary. The UK applies the Union Customs Code, which provides for a single customs border around the whole of the EU: Member States apply the EU’s Common External Tariff on goods entering the EU, but goods moving between Member States are not subject to any Customs Duty. The only domestic legislation is the Customs and Excise Management Act 1979.

EU law provides the framework for VAT and excise duties across the EU, but does so through Directives, which (unlike the Union Customs Code) are not directly applicable in Member States. Instead, the EU rules are implemented in the UK by domestic legislation, such as the VAT Act 1994.

Government proposals

Because of the complexity of this area of EU law, and because the powers to amend or correct converted EU legislation in terms of the European Union (Withdrawal) Bill will not allow ministers to impose or increase taxation, the Government intends to introduce separate primary legislation – to be called the Customs Bill – for the dual purpose of creating a new customs regime and amending the VAT and excise regimes. It is intended that the Customs Bill will introduce a general framework for the duties, with secondary legislation used to set out the detailed rules on administration, collection, and enforcement.

The present VAT and excise regimes are likely to be replicated in very nearly their current form, lacking only the references to EU law. There will be provision for secondary legislation in order to bring the regimes into line with the final deal reached between the UK and the EU.

The new customs regime to be set up by the Bill is also likely to retain as much of the structure of the current Union Customs Code as possible in order to provide continuity for businesses.

Future relations

The white paper sets out two possible models for a future customs relationship with the EU:-

  1. A ‘highly streamlined customs arrangement’ – this arrangement would take the form of a formal customs arrangement between the UK and the EU, but would involve carefully negotiated arrangements to mitigate the burden of additional administration that this would involve. Suggestions include waiving the requirement to submit entry and exit summary declarations for goods moving between the UK and the EU, and greater use of technology to avoid delays at the border waiting for customs clearance.
  2. A ‘new customs partnership’ – this arrangement would involve a close mirroring of UK and EU customs requirements, at least for goods destined for the EU, coupled with an agreement for mutual recognition of border checks. This would allow for potentially seamless trade between the UK and EU, as the requirement for customs checks would already have been dealt with. The UK would set its own customs rates for goods not destined for the EU. The white paper makes clear that such an arrangement would be highly complex, and would certainly require further primary legislation to implement.

The white paper rejects outright the suggestion that in order to avoid a hard border between Northern Ireland and the Republic of Ireland, a customs border should be established between Northern Ireland and the rest of the UK. Instead, it proposes a cross-border trade exemption for small traders (estimated to be over 80% of cross-border trades) and a streamlined customs system (along the lines of option 1 above) for the remainder.

No Deal?

The white paper makes it clear that the Government is seeking a transition period in order to allow for a smooth transition from the existing EU regime to its British replacement. In the event that no deal is reached, the white paper sets out the likely customs regime that would be implemented between the UK and EU.

What next?

The Government will publish the draft Customs Bill in the autumn. In the meantime, it is seeking responses from stakeholders on the white paper.