Article published – 4th December 2020
It is time to prepare for the end of the Brexit transitional period.
Whilst the United Kingdom officially left the European Union (EU) on 31 January 2020, this prompted the start of an 11-month transitional period during which time the UK remains part of the Single Market, the EU Customs Union and the VAT Territory. The UK will leave the EU VAT Territory on 31 December 2020. After this date, Great Britain (England, Wales and Scotland) will not be subject to EU VAT legislation. Northern Ireland will remain subject to EU VAT legislation in respect of transactions involving goods, but not for services.
Brexit will affect all businesses to a certain degree. Here are some of the main areas of changes UK businesses will have to adopt to:
Acquisitions (purchases of goods from EU member states) will be treated as imports. Importing goods from EU countries will switch to being a similar process to importing goods currently from non-EU countries.
A new system, Postponed Accounting, will be introduced and will apply to imports received from all over the world, with some exceptions such as low-value consignments. The system is intended to mitigate the cashflow disadvantage posed by paying import VAT upfront and waiting to reclaim it in a later VAT return.
Under the new system, import VAT can be deferred and declared to HMRC in the VAT return for the period of importation. The VAT can be reclaimed in the same return subject to the normal rules for reclaiming input tax.
It is important to be ready for these changes. To import goods, businesses will need to obtain an Economic Operator Registration and Identification (EORI) number. It is free to obtain an EORI number and you can do so by clicking here.
When goods enter Great Britain, you will need to complete a summary declaration for customs duties and import VAT.
Business will need to find out the rates of duty and VAT that apply (including VAT on services). Note that import VAT payments can be postponed.
When the UK leaves the EU Customs Union on 1 January 2021 the UK will operate a full, external border with the EU. New border controls on imports from the EU to Great Britain will be introduced in stages, with customs declarations for goods which are not controlled being delayed until 30 June 2021.
You can optionally make a supplementary declaration for imported goods from the EU. This means that you record the goods in your own record keeping, account for the VAT (if you’re eligible), and make the declaration up to six months after the goods were imported.
If you import goods from anywhere outside Great Britain (or possibly the UK depending on the final rules) after the end of the transition period, you can use Postponed Accounting to avoid the requirement to pay import VAT immediately upon the goods entering the UK (e.g. at the port of entry).
With this, you can declare the import VAT on your VAT Return. This avoids paying VAT and then reclaiming it later.
There is no need to get authorisation from HMRC to use Postponed VAT Accounting, but you’ll need to include your EORI and VAT number on the customs declarations.
Consignments under £135 will no longer attract import VAT and instead input VAT will be applied at point of sale by the seller.
If goods are being sold to a consumer or non-VAT-registered business, the seller should charge UK VAT and will therefore need to register with HMRC and account for UK VAT.
If goods are being sold to a VAT-registered business then the UK VAT will be reverse charged to the customer. This will then lead to the goods clearing customs quickly.
Quite clearly, the export process will undergo major changes, regardless of the deal that is negotiated.
As with importing, you’ll need an EORI number beginning with GB. The big change for most businesses will be a new requirement to make customs declarations.
You may choose to use a UK-based agent freight forwarder to help with making custom declarations. Customs agents or fast parcel operators can ease the administrative requirements.
If you buy goods from the EU, check whether those goods are ‘controlled’. Ascertaining which declarations are required and when they will need to be made. For more information please click here.
Some goods may need export licenses or certificates. As an alternative, the simplified declaration procedure can be used for some kinds of exported goods. This means that you don’t need to provide as much information as a full declaration upfront and can instead use a pre-shipment advice declaration. You will still need to provide the rest of the customs export information at a later date.
To use simplified declarations, you’ll need to be authorised by HMRC and registered to use the National Export System. You can also simplify export paperwork requirements using the entry in declarant’s records procedure, although this only applies to goods that don’t need a pre-departure declaration.
Please note that VAT will not apply to most exports, which is to say, they should be zero-rated. Businesses should keep a close eye on developing political discussions to determine the preparations that need to be made.
Northern Ireland Protocol
Northern Ireland will remain part of the UK’s customs territory, and will therefore benefit in full from any free trade agreements the UK signs with other countries.
The EU’s Union Customs Code will apply to trade between Northern Ireland and the Republic of Ireland, meaning that no tariffs or restrictions on trade in either direction.
Goods shipped from Great Britain to Northern Ireland will be subject to customs declarations but will be tariff-free, unless they are deemed to be ‘at risk’ of ending up in the EU. In this case, EU tariffs will apply although the UK authorities can reimburse businesses if the goods are proven to have stayed in Northern Ireland.
Goods shipped to Northern Ireland from outside of the EU will be subject to the UK Global Tariff, unless deemed ‘at risk’ of onward travel into the EU. In this case, EU tariffs will apply although the UK authorities can reimburse businesses if the goods are proven to have stayed in Northern Ireland and UK tariffs are lower.
Provision of services
From 1st January 2021, authorisations granted by the UK authorities under EU single market rule will no longer be applicable in the EU. In order to access the union market, UK service providers and professionals established in the UK will need to demonstrate compliance with any rules and procedures that cover the provision of services in the EU by foreign nationals or companies outside the EU.
Recruitment of staff
If your business is planning to recruit from overseas from 1st January 2021, you will need to register as a licenced visa sponsor. Your business might not be legally able to hire people from outside the UK if you do not have a licence.
New employees from outside the UK will also need to meet new job, salary and language requirements. Irish citizens and those eligible under the EU settlement scheme are not affected.
Data Protection and GDPR
GDPR will continue to apply for the foreseeable future as its provisions will be incorporated into UK law at the end of the transition period and will be known as UKGDPR.
ICO advises that UK businesses and organisations already complying with GDPR and with no contacts or customers in EEA, do not need to do anything additional. However, those UK businesses that receive personal data from contacts in the EEA will need to take additional steps and will need to comply with both UK and EU data protection regulations.
There are a large number of potential complex legal issues resulting from Brexit negotiations. With such a large range of potential changes to occur, with each having a potentially huge impact on business operations, business needs to begin getting prepared urgently.
Contracts may need to be re-registered and re-signed, if the relevant terms and authority are no longer valid in a post-Brexit world, with force majeure being a particularly key concern.
Commercial relationships may change, which will be needed to be worked through together. Likewise, businesses may have a change of regulatory body, with new rules to be followed and administration to be filed. Meeting these terms will be a complex and large operation, which will be onerous and time-consuming.
International trade paperwork (EU and non-EU) may change, and businesses will need to be aware of their new duties to ensure operations can continue smoothly.
The Brexit situation is continuously developing and evolving as negotiations continue. However, this must not detract from the urgent need for businesses to scenario plan and develop contingency actions to counter the possible repercussions coming from the UK exit from the EU on 1st January 2021.