The text of an Free Trade Agreement (FTA) has been agreed by the UK and the EU negotiating teams. This will now need to be ratified in order to bring it into UK and EU law. It is a long complex document that will take some time to fully understand.
The FTA introduces zero tariffs on goods moving between the UK and the EU. However this only applies where the goods being transported originate in the UK or the EU. Goods that were imported from elsewhere (or are made up of components imported from elsewhere) may still be subject to customs duties depending on the nature of the goods and the arrangements in place with their country of origin.
And the FTA does not remove the new requirement to make customs declarations on UK-EU movements, or the changes to the VAT position.
The additional costs and time at the border is likely to encourage UK and EU businesses to rethink their supply chains - especially those involving perishable goods.
Below we set out our priority checklist for businesses as the transition period ends. However, businesses should be cautious that decisions made today have lasting impact tomorrow. Businesses will need to ensure their operational networks and supplier agreements remain resilient post 1 January 2021 when making these short-term changes.
What can I do?
Trader Support Service
The Trader Support Scheme TSS was introduced by HMRC on 1 Jan 2021, to assist companies with the new legal requirement to completing customs declarations when moving goods from GB to NI.
Information about the TSS, why you should act now and how BDO can help support you, can be found here.
The NI Protocol
From 1 January 2021, under the terms of the Northern Ireland Protocol, traders in the province must also follow EU Customs Union rules on moving goods as well as new UK regulations. You can find more information regarding businesses engaging in new processes under the Northern Ireland protocol here.
Brexit Support Fund
Small and medium sized businesses in Northern Ireland can also apply for funding to help them adapt to new customs and tax rules when trading with the EU. The £20m Brexit Support Fund, which closes 30 June, enables businesses who trade with the EU to access up to £2,000 of funding for practical support including training and professional advice on new customs, rules of origin and VAT processes.
To be eligible for the grant, businesses must have no more than 500 employees and turnover no more than £100m. They must only import or export goods between Great Britain and the EU, or move goods between Great Britain and Northern Ireland. If businesses already import or export goods to and from a non-EU country, they are not eligible. More information on the fund and how to apply can be found on GOV.UK.
BDO NI Taskforce
Our Brexit taskforce team are ready to support you with any query regarding preparing for Brexit, please contact them today or log your query here.
Priority Checklist for business:
1. Make VAT reclaims on expenses under 8th directive
VAT registrations - Tax authorities are not keen on repaying VAT but there is an established online mechanism for reclaiming VAT on business expenses you incur within the EU. It is likely that UK businesses will only be able to use a paper-based 13th Directive process which means refunds can take much longer. Therefore, make claims now to limit the hit to your cashflow.
2. Check whether Customs duty will apply regardless of the FTA
Supply chain - While the FTA removes Customs duty on goods moving between the EU to the UK this only applies where the goods have UK or EU origin. Where goods originally come from a third country or are made up of components from elsewhere then duty may apply depending on the type of product and the arrangements in place between the UK/EU and the country they originate in. Businesses will be obliged to implement procedures to prove that the goods that they are importing from the EU originate there and may need to provide evidence to their customers in the EU of the country of origin.
3. Protect your cashflow from customs duty and import VAT
Economy - Customs simplifications such as Customs Warehousing, Inward Processing Relief and a Duty Deferral Account can help protect your cashflow from short term customs duty and VAT charges so putting them in place now could save you time and money.
4. Ensure you will get the customs paperwork right
EU presence - Check that your systems are set up to handle the new VAT requirements and customs arrangements and make sure your teams have been trained on what they need to do. The government has made grants of up to 100% of the cost of training for employees on the new customs arrangements, up to a limit of £1,500 for each course.
5. Check your data transfer and protection obligations
Workforce planning - Check what potential restrictions there would be on transferring data across borders and put new policies in place to prevent potentially expensive breaches of rules in EU countries. You may need to change your contract terms to comply. Read the government guidance.
6. Adjust your contract terms
Group structure - The VAT position of sales of goods will to a large extent rely on the contractual terms as detailed in associated Incoterms. These define who is responsible for making declarations and paying any liabilities at the border. It is essential that these are clear in the contract and that these are communicated to Customers to prevent unpleasant surprises or disputes.
7. Day One trading in the EU
Forecast - Check that you have the licences/permits/approvals you need in all the other EU states in which you operate so that you can carry on trading as you do now. For example, are local VAT registrations needed? Should your product labelling change? Are you set up to make any new tariff payments needed? HMRC’s ‘Get ready for Brexit’ information serviceprovides a wide range of information on the licences you may need.
8. Secure your staff here and in the EU
Personal data - Check if your UK staff that are based in the EU will be able to work – will they need a local work visa? For EU staff based in the UK, check that they have applied for settled status or pre-settled status in the UK and understand the recently announced transitional arrangements.