Something fishy afoot as Brexit future nears

Shrouded in mystery – like so many customs rules.
Photo credit: Denis Palmer

On the north-west coast of Scotland, an ancient castle sits atop a 40-mile sea loch. To the north and east lie mountains so often wreathed in clouds and mist that locals swear the castle has magical properties and will disappear and re-appear in a flash. This is the Seat of the Ancient Society of the Six Nomenclatures whose 32 members offer guidance on customs duty for the United Kingdom. When there, all members are required to wear formal Highland dress, except for the four Scottish members who wear grey pin-striped suits.

I am not a member of the Society, merely an associate. I recently met the Society’s leader Charlie (she prefers it to Charlotte) in her office overlooking the loch. Over a glass of malt whisky (its price inflated by 74% excise duty and VAT) she tried to clarify the UK position post-Brexit.

“Before Brexit, there was no VAT or duty among members on imports and exports. Post-Brexit, on 1 July 2021 under the UK Global Tariff for imports, it’s going to be simpler.”

“Simpler… really?” I ask, a little taken aback that the UK could step so nimbly out of a trading arrangement built up over 48 years.

“Oh yes,” she continued. “It will be in pounds now, not euros. All rates of 2% completely abolished, zapped down to the Big O – Zero – Gone. Also the complex calculations on multi-commodity products gone too. There were 13,000 of them, products like pizzas, ready meals and vitamin-enhanced fish oil… all discontinued. Sustainable economy will be promoted. Developing countries protected. Band rates will be rounded down to the next lowest rate and 60% of trade will come in tariff-free.”

I leave her to savour her whisky, while I ponder my part in the saga of the vitamin-enhanced fish oil.

Whereas us Brits might dollop ketchup over our cooked breakfast, Norwegians prefer fish oil, which they often drink neat in small eggcup-sized glasses. My client, Thea, owned a fish processing plant and produced a fish oil that became its most profitable line, in fact the ‘champagne’ of fish oils. Thea moved to California, imported the Norwegian fish, added some vitamins and then re-exported it to the EU.

Vitamins carried a duty rate of 4%, but fish oil was 16%. So the product was classified as a vitamin. HM Customs caught onto this and a huge sum in fines, penalties, interest and VAT was levied on Thea. 

If the oil had been exported directly from Norway to the EU, no duty would have been due because Norway, while outside the bloc, is part of a wider European single market (before this arrangement, duty was once charged on the Christmas tree in Trafalgar Square – an annual gift from Norway in gratitude for British support in the Second World War). 

However, as the fish oil end product was exported from the USA, the Society ruled it was fish oil ‘enhanced’ with a mere sprinkling of vitamins and therefore bore the full 16% rate. It subsequently transpired that Thea was innocently involved in a massive smuggling enterprise using this simple principle of mis-classification.

Back at the Society’s offices Charlie continued to extol the benefits of the new post-Brexit nirvana:

“… Tariffs maintained on lamb, beef and poultry; 10% on car imports. There will be zero tariffs on white goods, ironmongery and DIY products.” She took a sip of her whisky. “And oh yes, zero on Christmas trees.”

I remarked: “Some of your strategy is very political.”

“Of course it is. Nowadays we have to look at money-laundering, national security, traceability of all goods, particularly toxic substances and items that could cause destruction to the community. Oh yes, animal welfare and food that must be delivered pure and unadulterated.”

I thought of American chlorinated chicken, but said nothing.

Charlie added: “The Society, as opposed to governments, no longer wants trade wars – I should not say this, but look at Trump and China. We also do not want to revert to trade protectionism.” She sighed. “However, tax is a useful weapon against product dumping and unfair trade practices.”

“What about the UK exporting to the EU?” I asked.

She shook her head. “For the time being, we will be treated as a third country, albeit as a most favoured nation (MFN) and the tariffs and quotas of the World Trade Organisation will apply. But I guarantee that the Society is striving for world harmonisation to embody the fair, just and equitable principles that I have outlined.” 

I liked this woman, but she was after all only serving her political masters … so far as she could make out.

I thought of Thea and her Californian-produced fish oil and wondered how a Grimsby fish oil producer might fare in our brave new Brexit world. I also felt a wee bit nostalgic for the days when, in Europe at least, people, goods, capital and services could move freely … without having to call on the machinations of Charlie and her Ancient Society of customs fixers.

Rod Watson is a Fellow of the Chartered Association of Certified Accountants, with expertise in VAT and customs duty classifications. He is now a management consultant. 

Follow @SussexBylines on social media