UK Transition. What Happens Next?
Time is running out. There are new rules for businesses and citizens from 1 January 2021. We are urging all clients to make sure they review their position and follow government advice to make sure they are ready. Government advice can be seen here.
We are also able to support clients directly with taxation, accountancy, VAT and duty matters. If you think you might need our assistance, please get in touch as soon as possible.
There is no doubt about it, everyone will be affected by transition. Those who are importing / exporting will feel it particularly acutely, and we have pulled together the brief guide with our customs and duties partners The Customs People:
There are two aspects to post 1st January Trade with EU
- Changes which are happening irrespective of whether an Free Trade Agreement (FTA) is signed
- The duty position if an FTA is signed
An FTA being signed does NOT mean nothing changes. Businesses should be aware of the changes which will be happening regardless, these include:
Imports from the EU excluding Northern Ireland
For all goods (except excise goods and certain named goods), there is an easement period from 1st January 2021 - 30th June 2021 whereby business can choose how to customs clear goods.
- Full clearance before goods arrive, which requires full declaration
- ‘Deferred declarations’ whereby goods are imported with no customs paperwork necessary but ‘supplementary declarations’ are lodged by 30th June 2021
For deferred declarations, it is necessary to consider the following:
- Duty is due when the deferred declarations are lodged
- Import VAT is payable via postponed VAT accounting when the return is due, rather than on import
- Monthly Intrastat reporting is still required
Tips for Importers
Consider who will be Importer of Record
Who will make declarations? The clearance agent, bureau or the business itself?
Review funding options available to assist with import costs
Consider using postponed accounting for VAT, meaning no payment of VAT at the point of import
Discuss INCOTERMS with suppliers. Common examples include:
- DDP - supplier becomes responsible for customs clearances and import VAT
- EXW - UK customer becomes responsible for export from the EU. UK businesses cannot export from EU after Brexit so EXW may be an issue going forward
Exports to the EU
Businesses will need export declaration (unless the value of consignment is less than €1,000 and is undertaken using a fast parcel operator who is signed up to export moratorium).
Exports must be pre-lodged prior to goods leaving for port.
Tips for Exporte
Consider whether Brexit means export licenses are required.
Consider who will be importer of record into the EU. Options include:
- EU customer, where they arrange customs clearance, and pay duties and VAT. Customers may prefer other arrangements which do not place such responsibilities on them.
- EU customer, where the UK exporter meets duty and clearance cost. This might be more favourable for the customer, but they remain legally responsible for the declarations.
- UK exporter, which might be the preferred route overall for the customer. However, in this case the UK exporter will need to consider:
- EU VAT registration to enable recovery of import VAT
- EU clearance and compliance
- Practical aspects of clearance and warehousing
- Responsibility for import licenses
- Availability of customs reliefs
Does the business import into the UK from the EU or outside the EU, and then re-export back to the EU? If yes, then the UK business will need to consider the following:
What is the level of duty on the original import into the UK?
What is the value of exports to the EU? What is the value on which duties are payable?
Is there a double duty exposure? If so, then there are a number of possible answers:
- Stock and warehousing management to ensure EU stock is shipped direct to the EU
- Use of a customs warehouse solution
- Inward Processing
- Other forms of duty deferral
We are working with clients on a number of transition challenges. Set out below are two typical examples of issues we are seeing:
Exposure to double duties
A UK company imports goods from China which it then re-exports to the EU. After 1 Jan 2021, there may be a double duty exposure (once on original import into the UK, and again on import into the EU)
The UK company uses a bonded warehouse arrangement to ensure that duty is only payable once the goods are released into free circulation in the EU.
Alternatively the UK company invests in its stock management and forecasting systems to ensure that EU-bound products are shipped directly to the EU, and that only UK-bound products come to the UK.
Non-established VAT registrations
A UK company is informed by a major EU-based customer that from 1 January 2021 they will only transact with the UK business if it has an EU VAT registration. The customer insists that the UK company remains responsible for importing goods into the EU.
The UK company registers for VAT in the EU territory of its customer as a non-established entity. This enables the UK company to continue to import, and to reclaim import VAT, while keeping the EU customer happy.