The UK and EU ultimately agreed a trade deal and the Brexit transition period ended on 31 December 2020. The timing of the deal being just at the start of the Christmas holiday period meant that organisations had minimal time to understand its implications on their activities before it took effect.
This alert provides an overview of some of the key points for organisations trading in goods and services from 1 January 2021.
The highlight of the trade deal is that there are zero tariffs and quotas on trade in goods between the UK and EU for goods which meet stringent rules of origin. A myth of the trade negotiations was that ‘a deal’ would mean that frictionless trade could continue. It can not. This is because it is necessary to submit import and export declarations when goods cross the UK/EU border. This will be a new procedure for many so obtaining assistance from an intermediary such as a customs agent is recommended. The Northern Ireland Protocol has taken effect and means that Northern Ireland will be treated as remaining in the EU for trade with the EU, but as being within the UK for trade with the UK. Organisations involved with trade with Northern Ireland will need to review what additional administrative or VAT requirements now exist.
In order to import into the UK, EU or Northern Ireland, EORI (import ID) numbers will be needed.
While there are no tariffs on trade between the UK and EU this is only the case where the goods originate in those locations. Goods whose ‘origin’ is from elsewhere may not fall within the parameters of the UK/EU trade deal, meaning they are potentially subject to positive rate duty when imported. Rules of origin are a complex part of the Customs Duty laws and professional advice is recommended when assessing the ‘origin’ of goods, particularly where the item is subject to various stages of manufacture in different countries. In order to benefit from zero tariffs, it is essential that businesses know the correct commodity codes for their goods, and understand the specific origin rule which applies for each commodity code.
The UK and EU agreed to recognise trusted trader scheme so obtaining ‘AEO’ status may be of benefit to businesses with a significant volume of import/ export transactions.
A further significant change for businesses trading in goods is that if they act as importer into the destination country they are likely to need to VAT register in that country. Maintaining overseas VAT registrations is not always straightforward even when the preparation of VAT returns is outsourced. New rules for sales of consignments valued at £135 to UK consumers also now apply and require the overseas seller to register for UK VAT and account for UK VAT on the sales.
Organisations that previously used common EU VAT simplifications such as triangulation and call-off stock may also experience change. For example, EU businesses can no longer use triangulation to relieve the need to VAT register in the UK and the same applies for UK businesses selling goods in the EU. This makes the need for overseas VAT registrations much more likely.
While there have been no changes to the VAT place of supply rules, the trade deal could still impact on services organisations.
The free movement of services appears to have ended and could mean that UK service providers choose to set-up establishments within the EU. The new establishments may need to be registered for VAT (and other fiscal obligations) and consideration will need to be given to which establishment provides services to customers and the correct VAT treatment to be applied.
There will be changes for sellers of Digital Services as UK sellers of digital services to EU consumers can no longer account for EU VAT via a UK Mini One-Stop-Shop (MOSS) VAT return. The same is also true for EU based sellers who will need to UK VAT register to account for UK VAT on sales of digital services to UK based consumers, as they can no longer account for UK VAT via an EU MOSS return.
The UK is now a third country to the EU which means that UK organisations providing services to customers in the EU will need to assess whether there are Use and Enjoyment rules in each Member State that apply to their activities and which may require the UK supplier to VAT register and account for local VAT in the EU. EU organisations providing services such as telecommunications services, broadcasting services, electronically supplied services, the hire of goods and the hire of a means of transport to UK customers may now have an obligation to register for VAT in the UK.
Additionally, UK organisations providing certain financial services will benefit from increased VAT recovery under an extention of the ‘specified supplies’ rules.
Last year, to prepare for Brexit, we recommended that organisations map their legal and physical supply chains to identify areas of likely change. These plans should be revisited to assess the impact of the trade deal.
Where needed, businesses should:
If you have any questions, please contact Robert Marchant or your usual Crowe contact.