There are more than 1,000 pages of the post-Brexit trade agreement under scrutiny at the moment.  

From the initial review, these are the key points you may wish to consider which may affect you and your business as we start 2021.

From 1 January 2021, the process for importing and exporting goods has changed. 

In its latest guidance, the Government has laid out the principles for the ‘Core Model’, which relates to all goods imported and exported, regardless of which means of transport are used to move the goods.

The guidance covers the core processes of:

• customs declarations
• import VAT
• safety and security declarations.

To help businesses adapt, HMRC will introduce the new border controls in the Core Model in three stages up until 1 July 2021. To help prepare for these changes, businesses should:

• Acquire an EORI number 
• Prepare to pay or account for VAT on imported goods
• consider commercial arrangements and terms of trade
• determine the customs value of goods
• confirm rules of origin
• consider how customs declarations to HMRC systems will be made and the use of a customs intermediary.

Tariffs will not be charged where goods meet the rules of origin requirements. Rules of origin refers to the ‘economic nationality’ of goods being imported and exported i.e. where they have been produced or manufactured, not just where they have been shipped or bought from. Under the agreement, goods must be locally sourced, or for have had sufficient work carried out on them in the UK.

The UK and EU have agreed a 12-month grace period on so-called rules of origin paperwork, but businesses must still abide by rules during this period.

Businesses in certain industries may also need to check: 

• What export licences or certificates they require
• The marking, labelling and marketing standards for food, plant seeds and manufactured goods
• The rules for exporting or importing alcohol, tobacco and certain oils.

If you move goods into Northern Ireland or via it into the EU, then you can sign up for the Government’s free Trader Support Service and you should acquire an ‘XI’ EORI number.

This free-to-use Trader Support Service is available to businesses of any size moving goods into Northern Ireland, providing guidance, training, a digital declaration support service and support from customs experts.

Implications on VAT 

The latest guidance on VAT on imports and services to and from the EU is complex and businesses need to account for this in their trading. 

Import VAT 

Goods that move into the UK from the EU from 1 January 2021 onwards will be considered imports, meaning import VAT will be payable and customs declarations will need to be made.

Import VAT is no longer payable when goods enter into the UK from 1 January 2021 and businesses should instead account for VAT on all goods imported using a postponed accounting system.

This means that import VAT is accounted for and paid via the usual VAT return, which will lead to an improved cash flow position for many businesses. 

This applies to all goods imported by VAT registered importers to the UK, including those from the EU. In most cases, import VAT should be recoverable by businesses.

Accounting for import VAT on your VAT return

Businesses have to account for import VAT via their VAT return under the postponed accounting system if the goods they import are for use in their business. 

A business must include its EORI number starting with ‘GB’ on its customs declaration and its VAT registration number if it is needed.

It can then account for import VAT on its VAT return when it submits a declaration that releases those goods into free circulation from one of the following special customs procedures:

• customs warehousing
• inward processing
• temporary admission
• end use
• outward processing
• duty suspension.

A business can only account for import VAT on their VAT return once they release excise goods for use in the UK – also known as ‘released for home consumption’. 

If the business imports goods that are not controlled into Great Britain from the EU, between 1 January and 30 June 2021, they must also account for import VAT on their VAT return, even if they delay the customs declaration or use a simplified customs declaration to make a declaration in their records.

Deferring VAT

New rules for VAT deferment apply in Great Britain, which allow businesses that import goods regularly, to apply for a deferment account to delay paying most customs charges, including import VAT.

Through this account, a business can make a single payment each month via direct debit instead of paying for each consignment separately.

The scheme is open to importers or customs agents and freight handlers that work for importers and have an approved deferment guarantee or waiver in place.

Regardless of the method of accounting for VAT on imported goods, checks to ensure that the data on the customs declarations is accurate will continue to be highly important for VAT purposes, for all imports. 

Consignments of value below £135 

Imported goods in a consignment not exceeding a value of £135, excluding specific excise goods and gifts, will not be subject to import VAT at the border.

Low-value consignment relief will be withdrawn and VAT will now be charged on the goods as if they were supplied in the UK and accounted to HM Revenue & Customs on the UK VAT return.

However, businesses selling goods to be imported into the UK with a value not exceeding £135 will be required to charge and collect any VAT due at the time of sale.

For UK VAT registered businesses importing goods in a consignment not exceeding £135 in value that has not been charged VAT at the time of purchase they can account for this VAT on their VAT return under the usual reverse charge method.

Place of supply

Businesses must determine the country where a supply takes place for VAT purposes so that they know where VAT due is payable.

Businesses should be aware that they may continue to create VAT liabilities in other EU Member States. This may mean that businesses in the UK require multiple EU VAT registrations within each member state that they trade within. 

Reclaiming VAT in the EU

Currently, UK firms incurring VAT in EU countries can claim VAT back (subject to national rules) via HM Revenue & Custom’s dedicated refund portal. 

That arrangement will remain in place until 31 March 2021, after which time, there is currently no provision in place to claim for VAT incurred in 2020, under the terms of the Withdrawal Agreement.

Impact on services

Post-Brexit there should be minimal impact on the supply of services. Business to business services are treated as though they are supplied where the customer belongs and that customer must account for the local VAT.

This will mean that for UK service suppliers they will continue to not charge UK VAT. For business to consumer supplies, UK VAT generally applies and this will also remain the same.

When receiving services, UK businesses may still have to apply a reverse charge to the receipt of services from non-UK suppliers. This ensures that there is no competitive advantage from sourcing services via non-UK suppliers.

Good and services

The trade agreement sets out the rules for goods crossing borders. There is no “mutual recognition of conformity assessment” in the agreement, which means checks on product standards is going to be more difficult.   

If you want to sell your product in both the UK and the EU, you may have to get it checked twice, to get it certified. 

On other border issues, there is also no agreement on recognising safety standards for exporting food of animal origin, which means potentially, costly checks for products going into the EU single market. 

There will, however, be some measures which cut technical trade barriers, and the mutual recognition of trusted trader schemes stay in place, which will make it easier for large companies to operate across borders. 

There is a “check for barriers to trading and investing abroad” digital service. The new tool, found here, will allow companies to check for regulations imposed by other countries, as well as enabling companies to monitor when such restrictions have been removed.

Data

Both the UK and EU want data to flow across borders as smoothly as possible, but the agreement also stresses that individuals have a right to the protection of personal data and privacy and, to quote a line in the agreement, that “high standards in this regard contribute to trust in the digital economy and to the development of trade.” 

The EU has agreed to a period of four months, extendable by a further two months, in which data can be exchanged in the same way it is now, as long as the UK makes no changes to its rules on data protection. 

Travel

UK nationals will need a visa if they want to stay in the EU for more than 90 days in a 180-day period.  

Your European Health Insurance Card remains valid until its expiry date and the plan outlined in the agreement is to replace these with a UK Global Health Insurance Card. There is more information to come on overseas health insurance in the coming months.  

You do not need an International Driver’s Permit to drive in the EU as a UK citizen.

Working in the EU

UK professional qualifications won’t be recognised automatically in the EU, which will make it more difficult to work in the EU, especially for those in the service sector.   

It appears that UK citizens will need to apply to the individual country in which they wish to work to get any professional qualifications accepted. This may change as the agreement suggests a framework of mutual qualification recognition in the future.

There are measures which commit both the UK and the EU to maintain common standards on worker’s rights, as well as many social and environmental regulations. The UK does not have to follow EU law, but they do have to be seen to protect the rules of “fair competition”.

European Court of Justice (ECJ)

The ECJ will remain as the ultimate arbiter of European law, however, the EU has agreed that the ECJ should NOT play a direct role in policing the governance of the agreement in future.  

The ECJ will remain as is in Northern Ireland, which has a special status under the terms of the Brexit withdrawal agreement.   

Northern Ireland will also remain subject to the EU’s single market and customs union rules, which means the ECJ will remain the highest legal authority there.

Canada

The UK and Canada have agreed transitional measures to maintain the flow of goods between the two territories now that the transition period has ended.

The agreement adds to several post-Brexit trade deals struck during 2020, with countries such as Mexico, Switzerland, Singapore, Vietnam, Norway, Iceland and Switzerland agreeing to maintain the free flow of goods and services between them and the UK.

Under the temporary measures agreed with Canada, it is understood that tariff-free trade will be maintained for UK and Canadian businesses exporting goods eligible for preferential treatment under the Transitional Canada Agreement [TCA], access to Tariff Rate Quotas will be maintained for products covered in the TCA, and Rules of Origin that enable EU content and processing will count as originating in the UK as set out in the TCA.

More information about new trading arrangements valid from 1 January can be found by visiting the Brexit pages on our website.

For help and advice on related matters, please get in touch with our advisory team today.