BREXIT

Although the UK voted to leave the European Union in 2016 and officially left the trading bloc on the 31st January 2020 a trade deal has been in negotiation over a 12 month transition period.  With time running out a deal was finally agreed on 24th December and passed into law to come into effect from 31st December 2020.  This deal has averted a no deal Brexit and sets the basis of the UK’s future relationship with the EU. 

But what are the main highlights?  And what are the potential effects on you and your business?  In this blog I have tried to set out the main points of interest and the implications of the changes from how the UK has historically interacted with the EU.  If you are interested in reading through the 1,246 page deal yourself, you can find it here

1.      Trading of goods

Fortunately, the UK was able to agree a free trade deal with the EU meaning that there will be no additional taxes on goods (tariffs) or limits on the amounts that can be traded (quotas) between the UK and the EU from 1st January 2021.

• Although there will be free trade with the EU there will be additional checks at each border such as safety checks and customs declarations.  This is because the UK is no longer bound by EU law and therefore it is a necessity to ensure that goods entering each trading bloc conform to their respective regulations.  There are some new restrictions on certain UK animal food products. For example, uncooked meats like sausages and burgers can't enter the EU unless they are frozen to -18C.

•  A free trade deal means the fear that goods could become more expensive due to tariffs has been averted.  However, especially in the short term, there may be delays in supply chains as companies conform to new procedures at ports.  Disruption may occur if new paperwork is incomplete.

The practical steps you need to take if you do import or export to the EU are as follows, but do be aware that there are different rules for Northern Ireland:

Import

1.       You need an EORI number that starts with GB to import goods into England, Wales or Scotland. You'll need a new one if you have an EORI that does not start with GB.

2.       If you move goods to or from Northern Ireland you may need one that starts with XI.  You can apply for an EORI number via this link

3.       The business sending you the goods may need:

• to make an export declaration in their country

• licences or certificates to send goods to the UK

4.       You can hire someone to deal with customs and transport the goods for you, or you can do it yourself:

• Most businesses that import goods use a transporter or customs agent.

5.       You’ll need to include the commodity code on your import declaration. This will determine the rate of duty you need to pay (only applicable to imports from outside the EU) and if you need an import licence:

• You’ll need to include the commodity code on your import declaration

• Your customs agent or transporter might be able to help you with this.

6.       When you make your import declaration, you’ll need to include the value of your goods - this helps work out how much duty (if from outside the EU) and VAT you’ll need to pay.

7.       If the UK has a trade agreement with the country you're importing from, you may be able to pay less duty or no duty on the goods (known as a 'preferential rate').

8.       There are special rules and you may need to get licences or certificates if you are importing specific goods such as the following: animals and animal products, plants and plant products, high risk food, veterinary medicines, human medicine, controlled drugs, tissues and cells for human application, waste, products containing F gas, precursor chemicals, hazardous chemicals, nuclear material, guns, knives, swords and other weapons, weapons and goods that could be used for torture or capital punishment

9.       Check the marking, labelling and marketing standards for food, plant seeds and manufactured goods

10.    If you're VAT registered, you can claim back any VAT you paid on the goods you've imported, where you haven’t chosen to use the VAT postponement scheme (see below). If you pay the VAT at the time of import Yyou’ll need your Import VAT Certificate (C79) to be able to reclaim the VAT on your VAT Return as is currently the case with imports from outside the EU.

Export

1.       Check duties, rules and restrictions for your goods in the destination country

2.       There are special rules and you may need to get licences or certificates if you are exporting certain goods.  The list of these goods are the same as the special goods for import (as above)

3.       You need an EORI number that starts with GB to export goods from England, Wales or Scotland.

4.       The business or person receiving the goods to may need:

• to make an import declaration in their country

• licences or certificates to receive goods from the UK

5.       You can hire someone to deal with customs and transport the goods for you, or you can do it yourself.

6.       You must find the right commodity code to classify the goods you're exporting.

• your customs agent or transporter might be able to help you with this

7.       The completed invoice and any licences or certificates must travel with the goods.

• When filling in the value of your goods on the invoice, use the price you’re selling them for. If you're not selling the goods, use the market value of the goods. List any freight or export insurance you included in the price separately.

• You may need proof of origin if exporting to a country where your goods have a reduced or zero rate of duty.

• Get proof of origin for your goods

• The export of the goods will almost always be You might be able to zero rated the goods for VAT. This means you can charge your customers VAT at 0%.

VAT implications

Domestic VAT rules will remain the same following the Brexit deal.  However, VAT rules relating to imports and exports to and from the EU will change.  As of 1st January 2021, UK businesses will treat EU countries like they already do countries outside the EU.

Trade with EU countries will cease to be called dispatches and acquisitions, and will instead be referred to as imports and exports – again, in line with trade with non-EU countries.

In broad terms, VAT will be payable upon import, although the UK government has introduced the postponed VAT payment system to avoid cash flow issues.

The postponed VAT payment scheme – Postpone VAT Accounting (PVA) – allows traders importing goods into from both the EU and the rest of the world to defer making cash payments of import VAT by selecting this option when completing the customs declaration.

This will be recorded through the company’s VAT return, which is completed by all UK VAT registered businesses – both UK resident and non-resident.

Traders using postponed import VAT payments can access a postponed import VAT statement online of all their imports where they opted to postpone the import VAT through the customs clearance paperwork. Each statement shows the total import VAT postponed for the previous month.

The statements are available to view in the first half of each month. They are only available for 6 months from the published date, so it must download and a copy kept in records.

The statement can then be used for reporting in the subsequent monthly or quarterly UK VAT return as follows:

Box 1 - Total VAT due in this period on imports accounted for through postponed VAT accounting.

Box 4 - Total VAT reclaimed in this period on imports accounted for through postponed VAT accounting.

Box 7 - Total value of all imports of goods included on your online monthly statement, excluding any VAT.

Traders can account for import VAT if:

1.      the goods imported are for use in their business

2.      where using a GB or XI EORI number in the customs declaration

3.      a UK VAT registration number is included in the customs declaration

If traders initially declare goods into a customs special procedure, they can account for import VAT on their VAT Return when they submit the declaration that releases those goods into free circulation from the following special procedures:

• customs warehousing

• inward processing

• temporary admission

• end use

• outward processing

• duty suspension

Traders can account for import VAT on the VAT Return when they release excise goods for use in the UK - also known as ‘released for home consumption’. This includes when goods are released from an excise warehouse after being in duty suspense since the point of import.

2.      Services and qualifications

UK service industries, especially financial services, make up the bulk of exports to the EU and the rest of the world.  The service sector is the dominant sector of the UK economy, and contributes around 80.2% of GDP (as of 2016). 

Broadly there is little change to business providing services to the EU.  Where the customer is a business the supply is deemed to be where the customer is resident.  If your business customer is outside of the UK, then the ‘General Rule’ still applies. This means it is outside of the scope of UK VAT, so zero-rated. Your foreign customer then uses the ‘reverse charge’ to show the VAT in their return. You must obtain evidence of your customer being outside of the UK; typically a valid VAT or tax ID number in their country of residence. But other proof is satisfactory. Otherwise, this should be treated as a B2C supply.

For some services to consumers the general rules that the supply is where the supplier is located has remained largely unchanged and would therefore be subject to UK VAT.  The special rules placing certain supplies where the consumer belongs have also not changed and therefore you should carry on as you did before.  The exceptions to this are: 

• Digital services; UK businesses using the EU single VAT return, MOSS, will now have to register in another EU state for MOSS to report sales to consumers in EU.  Ireland is likely to be the most popular choice due to the common language.  There is no longer a deminimis level of sales so you will be required to register as soon as you make any sales to an EU consumer.

• Professional, technical, advertising, consulting, staff, financial services, intellectual or intangible, data processing services; prior to Brexit, the general rule applied to sales to EU consumers but the special rule applied to non-EU consumers. Since 1 January 2021, the Special Rule apply to both EU and non-EU consumers, meaning UK VAT does not apply. This means you should consider the VAT position in the country your customer is based.

The Brexit deal means that businesses offering services such as banking, architecture and accounting will lose their automatic right of access to EU markets and will face some restrictions.  Rather than following one set of rules for the whole of the EU, UK businesses will need to comply with the regulations in each individual country.  The EU is unlikely to unconditionally grant access to its single market to a “third country” (what the UK is now recognised as).  The major implications of this are as follows;

1. Many professional qualifications will no longer be treated as equivalent.  It will be harder for people with qualifications gained in the UK to sell their services in the EU. Individuals will need to check each country's rules to make sure their qualification is still recognised.

2. Since financial services are outside of the agreement, any firms without an EU branch will require one to maintain access.

3. Another point of contention was the implication of a “level playing field”, which would require the UK not to diverge significantly from the EU on regulatory matters and vice versa.

4. The UK is likely to adopt a British data protection standard that will satisfy the EU that the protections afforded are equivalent or stronger.  The implications of this are that businesses will need to review their contracts to ensure that any data held will be compliant with the new UK standard.

3.      Travel

The UK no longer has free movement with EU member nations meaning that UK nationals can no longer travel, work and live in the EU without following strict protocols.

When travelling to the EU you will need to ensure the following:

1. UK nationals will need a visa for stays of longer than 90 days in the EU in a 180-day period.

2. Get travel insurance that covers your healthcare.  European Health Insurance Cards, (EHIC) cards will remain valid until they expire.  The UK government says EHIC will be replaced with a new UK Global Health Insurance Card, but full details have not been released yet.

If you plan to live and work in the EU you will need to ensure the following

1. You’ll need a work permit to work in most EU countries if you’re a UK citizen.

2. In most cases, you’ll need a job offer from your chosen country so that you can get a visa to move there.

3. Check with the UK-based embassy of the country you want to work in to see what you need to do.

4. If you want to work in an EU country, check the country’s living in guide for updates.

The Brexit deal has provided certainty for UK businesses and provided the basis for the UK’s future relationship with the EU.  This has allowed the UK to move into a new era with the EU with minimal disruption and prevented any potential negative impacts on the UK economy due to a no deal Brexit.  However, there are still many subtleties to be finalised, especially within the service sector, which will take time to be negotiated and implemented.    

FUSE is an independent Chartered Certified firm of accountants and tax advisors based in Highgate Village, North London. We provide a dynamic range of services to clients working in property, media, entertainment and professional services. Our clients vary in size from self employed sole traders, small enterprises and medium size businesses. We believe that comprehensive financial planning and sound business financial advice are the keys to growth and profitability.