The UK Government has published its border operating model and has also published the Northern Ireland Protocol 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.
Until the end of the transition period (31 December 2020) goods in free circulation 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 struggling to reach agreement on the future trading relationship, with time considered by many to be too tight to agree, ratify and implement new arrangements. Whatever the outcome though we expect it will be necessary to submit import and export declarations for goods moving between the UK and the EU. 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 in customs clearance is recommended.
2. Staggered introduction
For importers who have access to customs declaration software, 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. Import VAT will be due immediately, but see point 4 below. From 1 July 2021 onwards, full declarations will be needed and payment of duty/VAT due before import allowed. For imports into the EU from the UK, full customs declarations and payment of charges will apply from 1 January 2021 – there will be no phased introduction.
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. For most importers, where the amount of customs duty to be deferred is no more than £10,000 per month, no deferment guarantee is required. For greater amounts, a waiver is also available for those approved as Authorised Economic Operators (AEO C). From 1 January 2021 VAT registered importers will account for import VAT on their UK VAT return, which could deliver significant cashflow benefits. Deferment accounts are compulsory for the use of certain customs regimes, e.g. customs warehousing, but otherwise they are merely a method of paying customs import charges. 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. The accuracy of a commodity code, and all other data declared on a customs entry, is the legal responsibility of the importer. There are over 15,000 codes and if a business does not currently know which apply to its products it should confirm that position – if in doubt, seek help if necessary. 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.
6. Northern Ireland Protocol, and Trader Support Service (TSS)
The Northern Ireland Protocol sets out the controls which will apply on movements of goods from GB to Northern Ireland, as part of the UK’s commitment to maintaining a frictionless land border between Northern Ireland and the Republic of Ireland. This includes how declarations will be made, and is assisted by the TSS – a free to user service to help businesses with their obligations set out in the Protocol. The TSS is accepting registration which also provides access to relevant information and free training – access here.
For more information on the Northern Ireland Protocol, read our insight.
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, Ian Worth or your normal Crowe contact.