The UK Government has published its operating model to manage the import and export of goods from 1 January 2021. That is the date when the Brexit transition period ends and the UK will no longer be part of the EU Customs Union, the Single Market or subject to the EU VAT Directive.
At the moment goods within the EU Customs Union (CU) can move freely between members of the CU free from additional import taxes, although they are still subject to each nation’s VAT rules.
For VAT purposes, VAT is generally not charged by a supplier when goods leave a Member State (the supply is zero rated). Instead, the recipient accounts for acquisition tax when the goods arrive in the second Member State. There is a need to manage and declare that acquisition tax but quite often it does not create a VAT cost or cashflow implication.
This situation means that the flow of goods around the CU is relatively frictionless in terms of administration and timeliness (i.e. vehicles are not stopped because they lack paperwork). That translates to lower management costs.
Once the Brexit transition period ends, the UK will be outside of the CU. Goods leaving the UK destined for the EU will become exports from the UK and imports into the EU. The same will apply to goods moving from the EU to the UK. Based on 2019 data, that means £300 billion (43% of total) of exports and £372 billion (51% of total) of imports will be subject to a change in how customs duty and VAT is dealt with.
This is why the government has now published details on how it will manage these transactions. Key takeaways which businesses need to focus on include:
1. Declarations will be required deal or no deal
The UK and EU are still negotiating their future relationship. Whatever the outcome though we expect it will be necessary to submit import and export declarations. This will be the case even if a tariff free deal is agreed – that outcome would only result in import duties not being applicable to relevant goods. Obtaining assistance from an intermediary with expertise on this is recommended.
2. Staggered introduction
Imports of standard goods into the UK will be allowed six months to complete and submit Customs declarations. The same time frame will apply to payment of any customs duties, although import VAT will be due immediately. From 1 July 2021 onwards, full declarations will be needed and payment of duty/VAT due before import allowed.
3. UK Economic Operator Registration Identification (EORI) needed
An EORI issued by the UK will be needed by all businesses as it will link them to declarations and associated documents for imports and exports. At the moment an EORI issued by any Member State can be used in the UK. EU issued EORIs will be needed for imports and exports on the EU side.
4. Duty and VAT payments
Deferment accounts for duty may be beneficial for those importing on a regular basis. From 1 January 2021 it will be possible to account for import VAT on a UK VAT return, which might bring cashflow benefits. How to best manage these costs needs to be considered and actions taken to implement them.
5. Confirm commodity codes
Every declaration for an import and export will need to include the commodity code of each item involved. This code will determine the rate of duty which applies. There are over 15,000 codes and if a business does not currently know which apply to its products it should confirm that position. It has been confirmed that Intrastat declarations will still have to be submitted and knowing the commodity codes will be valuable to help complete these.
The operating model document sets out a number of different scenarios and includes details on all of the steps required to export and import correctly on the UK side. In addition, there is a limited amount of information about how the different customs systems of the main EU Member States will operate. Understanding the EU position is the ‘other side of the coin’ when UK businesses buy from or sell to the EU and the EU position requires the same amount as management as the UK’s to ensure that supply chains operate as intended.
Publication of this document is a clear indication from the UK Government of how the movement of goods will need to be managed from 1 January 2021. It has been estimated that there will be a need for over 400 million extra export and import documents to be produced a year. Impacted businesses will have to start planning as soon as possible.
Crowe are here to help with that planning and implementation. Whether it be supply chain mapping, applying for new VAT or EORI numbers or training for staff, we can help. Useful documents and resources to assist your business include:
If you would like to discuss further please contact Rob Marchant, Rob Janering or your normal Crowe contact.