Media reporting on Brexit has been dominated in recent weeks by discussion of customs options. The cabinet has been looking at two different proposals for future customs arrangements with the EU. Last week, the head of HMRC confirmed their estimates of the cost to business of the two options, indicating the total annual cost to business of the ‘Maximum facilitation’ option is £20 billion a year whilst the ‘Customs Partnership model’ would cost business a maximum of £3.4 billion a year. This week Parliament votes on whether Ministers should seek to continue to participate in a customs union with the EU (which would remove the need for either option).

What are Max Fac and Customs Partnership?

For full definitions, read the government's statement.

In brief, Maximum Facilitation (‘Max Fac’) aims to create as frictionless a customs border as possible using new technologies and existing schemes, rather than to remove it altogether.

A customs partnership would involve the UK acting on the EU's behalf when imports arrive from the rest of the world and would involve entirely new systems and processes.

Do the different models create different costs depending upon the nature of your business? 

Max Fac creates additional costs for all businesses that have EU-UK trade. The Customs Partnership creates extra costs for those businesses with imports only destined for the UK and where there is a difference between the UK and EU external tariff.

Do the HMRC figures match our own analysis? 

HMRC uses an average figure of £32.50 per customs declaration. We have developed our own tool for modelling the indirect tax cost and customs cost for our clients of different Brexit outcomes. Based on a sample of our clients’ costs, we have used an average of £35 per customs declaration plus an additional £45 for those products that require proof of origin – close to HMRC’s figures for the Max Fac.

Does this cover all the costs?

Both the Max Fac and customs partnership models have additional indirect tax costs to businesses compared to the current customs union.

Under Max Fac, if a Certificate of Origin is required there would be a cost to not only obtain the certificate (around £40), but also an administrative burden to prove the origin of the goods. For some businesses, there may also be direct or indirect costs of the introduction of new processes and computerised systems.

Under the customs partnership model, there would have to be an investment by businesses to develop and implement new processes and procedures. There would be additional administrative costs associated with tracking goods throughout the supply chain, along with proposed potential reclaim process. If there is a divergence between the UK and EU and the higher rate of duty is charged pending a reclaim if due, this will reduce cash flow.