Containers sea port

Getting ready for Brexit

VAT and Customs Duty considerations

Robert Marchant, Partner, VAT
Containers sea port

With less than 70 days to go until the end of the Brexit transitional period, there remains uncertainty as to whether a trade deal can be reached between the UK and EU. In any event, there remains a number of actions that businesses trading in goods between the UK and EU can be taking now to prepare for 1 January 2021 and the start of the UK’s new trading relationship.

There are also some misunderstandings as to what the impact or benefit of a ’deal’ would be. Since the summer, many businesses have increased their Brexit preparation activities and there is now a common theme to the questions that businesses are asking.

This article details answers to some of the most frequently asked questions.

Irrespective of the outcome of the trade deal will there be a need to make customs declarations?

This is a common misunderstanding of what any trade deal may mean. Import and export declarations will be required for trade in goods between the UK and EU. Once the Brexit transition period ends, the UK will be outside of the EU and will no longer be part of the Customs Union or Single Market. Goods that move into the UK from the EU after 1 January 2021 will be considered imports in place of an intra-EU acquisition. Import VAT and customs duties will be payable and customs declarations will need to be made. If there is a ‘deal’ it would likely alter the rate of duty payable on eligible goods but it would not negate the need for import and export declarations.

What role can my freight forwarder/customs agent play, where I have only purchased from the EU before and I am not familiar with import processes?

Speaking with your agents is critical to ensure they have the capability to handle the additional paperwork required to bring your goods into the UK. Similarly, the increase in demand for these services may mean that there are pressures on supply, so ensuring you have arrangements in place is important. Finally, you should make sure that the information your agent will need has been identified and there is a process in place for you to provide it on a timely basis to avoid any undue delays.

Do I need an EORI number?

Yes. An EORI number is an importer ID number. Currently, an EORI issued in one EU Member State can be used to import goods into any of the other EU Member States. Following the UK’s exit from the Customs Union, a UK specific EORI number will be needed to import into the UK. Businesses that want to import into the EU will also need an EU issued EORI.

Applications for EORI numbers can be made now and are an easy preparatory action to take.

What rate of duty will I pay when importing into UK?

Every import and export declaration will need to include the commodity code of each item involved. This code will determine the rate of duty which applies on the products concerned. There are over 15,000 codes and if a business does not currently know which apply to its products, it should confirm that position. Customs classification is a specialist area and obtaining professional advice is recommended. The UK has issued its own global customs tariff which is similar to, but different from, the EU Customs Union tariff. The UK Global tariff can be accessed here.

Will there be changes to import VAT in the UK?

From 1 January 2021, import VAT will no longer be payable when goods enter into the UK. Instead postponed VAT accounting will apply to all goods imported by VAT registered importers to the UK, including those from the EU. Under postponed accounting, import VAT will be accounted for and paid via the VAT return which will lead to an improved cash flow position.

What are Incoterms® and what are their significance?

Incoterms® are a set of standard commercial law terms that are intended to communicate the obligations, costs, and risks associated with the transportation and delivery of goods. It is important that agreements with customers clearly set out the respective responsibilities for the delivery of goods. Linked to this is the question of who will act as importer of goods into the UK or EU. The “importer of record” will be responsible for the administration of importing the goods and the payment of any import taxes. From a VAT perspective, the importer will most probably have to be VAT registered in the country of importation.

Using the wrong Incoterms® and misunderstanding who will be the person responsible for importing the goods can lead to unexpected costs and delays.

Can I apply for a UK duty deferment account?

Deferment accounts for duty may be beneficial for those importing on a regular basis. For most importers, a bank guarantee will not be required for deferred customs duty amounts below £10,000 per month or if the business has Authorised Economic Operator (AEO) certification. Note that postponed import VAT accounting will mean that there is no need to include import VAT when considering the required level of deferment guarantee.

Do I need an EU company?

Goods leaving the UK destined for the EU will become exports from the UK and imports into the EU. Where a business is the importer of record of goods into an EU country it will likely need to VAT register there in order to pay and reclaim import VAT. As the UK becomes a third  country, UK companies may also need to appoint fiscal representatives in each EU Member State that it sells goods, who will be the local agent of the company and jointly liable for the payment of any taxes owing. The customs agent used to import the goods into the EU may also be liable for the payment of any customs duties owing.

Companies that import goods into many different EU locations may want to consider setting up an overseas company in the EU to be the importer into the EU. This company would be customs clear and pay the relevant duties and import VAT. These goods can then move freely between members of the Customs Union free from additional import taxes. There is no need for an EU company to appoint third parties who will be jointly and severally liable for the payment of any VAT or custom duty debts. 

Planning points

Planning points

The starting point for any Brexit preparation project is to consider your legal and physical supply chains so as to then identify the potential areas of change. There are then a number of actions that can be taken now to ensure that your business is able to import and export goods between the UK and EU and to minimise the risk of your goods being stranded after 1 January 2021.

If your business will import into the EU it is worth keeping in mind that 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 of management as the UK’s to ensure that supply chains can operate as intended.

This article was first published in Bloomberg Tax on 29 October 2020.

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Robert Marchant
Robert Marchant
Partner, VAT and Customs Duty services