The first month since the end of the Brexit transition period has seen our team called upon to help many businesses work through the implications of the new UK-EU trade agreement.
Companies have realised that the ‘tariff-free trade’ headlines which dominated the pre-Christmas news did not, perhaps, convey the true complexity of the issue.
Tariff-free trade does exist where a business can demonstrate that goods are of UK or EU origin but, if this is not possible, it is not a given.
Defining ‘origin’ is not always straightforward, so companies should look carefully at their customs processes and, if necessary, take advice.
The new environment appears to have come as a bit of a shock to some companies. As a result, they are urgently seeking solutions.
Rest assured, however, because all is not lost. A range of options is available and can help unearth cost savings, refunds, or potential improvements to processes.
Import processes can be complex, but we are helping clients to navigate the new rules.
We are actually finding some straightforward ways to improve import processes and to manage associated duty costs.
The first of these is simply to review tariff classifications for imported products. Some duties have come down since Brexit, so it is well worth checking products against the published rates of duty.
At the very least, this will enable companies to understand the actual duty costs of imports.
It’s also beneficial to regularly review tariff classifications to ensure they are the correct ones and to check whether there are more appropriate codes for existing or new products.
Driving down import duty costs
If you are facing substantial import duty costs, there are other ways to reduce these.
One of the more common statutory tariff relief schemes is inward processing.
It may be possible to legitimately defer or even cancel UK import duties on goods which are subject to sufficient levels of processing here before being exported onwards.
Importers can apply to the UK’s customs authorities for advance clearance on this point.
This also has the added benefit of being retrospective in effect, which means that the relief can apply from a date before the granting of a licence.
A more thorough yet costly way to deal with import duties is to use a customs warehouse.
This can be a physical or virtual solution and involves placing goods in a warehouse pending onward export.
Warehousing does not, however, permit retrospective treatment and only applies from the date of approval by customs authorities.
It is important to note that inward processing and the warehousing option both require upfront auditing from the customs authorities, so businesses need to ensure they are in good shape before embarking on either route.
Other aspects of the post-Brexit landscape have given rise to tangible benefits for UK importers and exporters.
For example, UK businesses now automatically qualify for the postponement of VAT on imports. This means that there is no VAT cash outlay on import, although businesses will still need to record these transactions on their VAT returns.
This is a positive development, as import VAT used to have to be paid before goods could be released through the UK ports.
In addition, we are noticing that, for some products, the rates of customs duties have decreased since the December agreement was signed, meaning there can be an actual cost saving for some businesses on imports.
This in turn can either be passed on as price savings to end users or help increase profitability for reinvestment into the business.
The EU’s planned expansion of its VAT ‘One-Stop-Shop’ to goods as well as services from 1 July 2021 is a welcome development.
This should be a meaningful simplification for UK businesses exporting to the EU and for those that are selling direct to consumers on the continent. We are looking forward to seeing further clarity on this initiative over the coming months.
Setting up in EU countries
A number of our clients are looking to establish themselves on the near continent, with Netherlands, Belgium, and Germany the most popular destinations.
This can range from simply applying for an EU VAT registration to enable recovery of EU import VAT, through to setting up a full EU-based company to ease import processes and improve customer experiences.
Businesses are also expanding into the EU for positive reasons, over and above a simple ‘defensive’ strategy of keeping a toe-hold in the EU.
Some businesses are starting up in the EU for the first time to gain access to the wider market, and the undoubted challenges that Brexit is throwing up also appear to be giving some firms the impetus to grow which they had previously lacked.
This is particularly the case for online retailers which want to develop their direct-to-consumer business in Europe, gearing up for an anticipated post-Covid bounce in consumer confidence.
Our next post-Brexit seminar
Over the past few weeks, we have been working with a range of businesses to lead them through some of the practicalities of their post-Brexit international operations. Our International Tax Specialist Adrian Young will be hosting a seminar to summarise the main changes and the impact these could have on any business trading with the EU.
To find out more reserve your place on our next webinar by completing the below form.