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The next phase of Brexit: VAT and Customs Duty considerations

Robert Marchant, Partner, VAT and Customs Duty services
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For many organisations trading in goods, the run-up to 31 December 2020 involved hasty preparations for the end of the Brexit transitional period and the start, from 1 January 2021, of the UK's new international trading relationships. This article highlights some areas that can be focused on in 2021 to improve import taxes positions.

Current position

Given the uncertainty caused by the protracted UK/EU trade negotiations, it was no surprise that many organisations only focused on the 'must-do' actions to give the best chances of minimising any disruptions to their operations. 

Organisations trading in goods felt this most acutely. It's worth remembering that as a member of the EU Customs Union, organisations could move goods between the UK and the other EU Member States, and vice versa, without worrying about import formalities. From 1 January 2021, the UK is outside of the EU Customs Union. Goods leaving the UK destined for the EU become exports from the UK and imports into the EU.

The same will apply to goods moving from the EU to the UK; they will be imported into the UK. Every time goods cross the Customs border, import formalities need to be completed as part of the process of bringing the goods into the destination country. A piece of positive news for businesses is that the UK/EU trade deal means that there are no tariffs on the importation of goods that originate in those locations. The requirement to complete import formalities, even if there are no tariffs, is a significant change and creates risks for organisations to deal with in ensuring their ability to continue to trade with their customers and suppliers.

A more strategic approach

The amount of change arising from the UK's exit from the EU differs from business to business. Generally, organisations believed they would do no more than take the minimum necessary steps to ensure their products could reach their customers come 1 January 2021. 

Now that organisations have more time, they may wish to start reviewing whether they can structure their arrangements more efficiently. This could include:

  • Completing their own Customs declarations – Many organisations, particularly those who are not experienced with filing their own customs declarations, propose to initially use a 3rd party customs agent to do so. At an average cost of around £30 - £50 per declaration, these fees can mount up for organisations making a high volume of imports/exports. With appropriate time to train and set-up the relevant IT systems, this function could be brought in-house to reduce costs.

  • Changes to supply chains – Many organisations mapped their existing supply chains and then identified the immediate tax changes arising. It may be that there are more tax efficient ways of carrying out these sales, and organisations now have more time to plan such changes. For example, could secondary warehouse locations be used to reduce delivery times or reduce the number of EU VAT registrations that are in place to reduce tax compliance costs?

  • Deferment accounts in place – Organisations should review whether they have duty deferment accounts in place as they can bring cashflow savings. However, there can be a need for a bank guarantee that brings costs, so organisations should check whether the guarantee levels remain appropriate and/or if a duty deferment account is needed at all.

  • Consider whether obtaining Authorised Economic Operator (AEO) Status could be beneficial – AEO status is an internationally recognised quality mark that shows the business's role in the international supply chain is secure and has adequate customs controls in place. As well as reputational advantages, having AEO status can bring administrative and financial savings. For example, in the UK, an AEO certified business does not need to provide a full bank guarantee to operate a duty deferment account.

From 1 January 2021, the UK has a new international trading relationship. For many organisations, the lack of certainty caused by the protracted UK/EU trade negotiations meant that their preparations only focused on ensuring their products could move come January. In the new year, organisations are encouraged to consider whether their arrangements can be made more efficient from a VAT or Customs Duty position. While Brexit is nearing completion, its effect will continue for some time still.

This article was first published on Forbes’ in January 2021.

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Robert Marchant
Robert Marchant
Partner, VAT and Customs Duty services