SMEs hardest hit
UK small and medium-sized businesses seem to have been the hardest hit in the first couple of months from the new trading relations with the EU and the sudden imposition of higher costs, including courier charges and tariffs.
For businesses bringing goods into Britain and then exporting to the EU, they have faced increased tariffs, in some cases rendering the UK unviable as a trade hub.
In response to this some businesses chose to halt exports to the EU temporarily while they reassess their options, whilst others moved swiftly to set up distributions warehouses in the EU, seek authorisations for duty suspension or engage with an end-to-end fulfilment house or customs intermediary to handle all the importing and exporting practicalities and additional paperwork for them.
This additional documentation and paperwork, especially for consignments with different types of goods from multiple suppliers, seems to be among the main issues causing delays.
Pressure may build in coming months
The initial months of trading following Brexit may not show an accurate picture as many companies stockpiled to avoid any border chaos in the early days of 2021, however these inventories will only last so long.
Furthermore, the UK will introduce its own border checks from June 2021 which could exacerbate the problems.
Overseas exporters to the UK seek support
It isn’t just UK businesses who have felt the burden of changes. In particular, we have been advising many overseas businesses on how to sell to UK customers and to meet the new VAT compliance requirements (including the VAT changes for consignments less than £135 to UK consumers and sales via Online Market Places).
We have also assisted and advised those looking to form a presence in the UK following Brexit and those who now need assistance with VAT registration and reporting in the UK.
Meanwhile, France-UK transport volumes have reduced as firms bypassed Britain by taking direct routes to Europe, such as via the new Dublin to Amsterdam shipping routes.
Origin status is set to be the hot topic this year
The rules of origin will be an important factor to achieving tariff free movement of goods.
The UK-EU Trade and Cooperation agreement (TCA) means that no tariffs or quotas will apply to trade between the two parties if the goods “originate” in the other party. This means that ‘origin’ will be a key consideration for any businesses moving manufactured goods between the UK and the EU. If the origin of the goods cannot be evidenced satisfactorily, tariffs may apply.
Where a product contains components that originate in different countries then “rules of origin” are used to determine where the end-product is deemed to originate. Rules of origin are product specific and can be complex.
Exporters meeting the origin rules will need to obtain a preference certificate to ensure that 0% tariffs apply. If origin is challenged, a higher rate of tariff may be liable to the importer and penalties may also apply for incorrect declarations.
A common issue and one which has been widely reported in the press is the scenario where EU goods enter the UK (tariff free) but are then re-exported to the EU, in particular Ireland (and vice versa). In these situations, tariffs can become payable on re-importation to the EU so businesses are looking at how this duty can be reclaimed through customs schemes such as Returned Goods Relief. This is subject to conditions and can be commercially unviable if the end customer is the party re-importing the goods.
We have included a broad summary of the importing and exporting changes in the following sections.
Contact us
If you need advice on the VAT aspects of importing or exporting, please contact our team to discuss how we can assist.
A summary of the new importing and exporting rules
Importing from the EU
From 1 January 2021, there are new customs and VAT procedures for those importing from the EU which are summarised below (please note that there are further rules for goods sent by post and for Northern Ireland).
- You will need an EORI number that starts with GB.
- If you need to make customs declaration for imports into an EU country, you’ll need to apply for an EORI there also.
- You (or an agent working on your behalf) will need to declare your goods when they enter Great Britain.
- You (or an agent working on your behalf) must pay any customs duties that are due. As such, UK businesses may be required to obtain a duty deferment accont to allow this duty to be paid by direct debit in the month following the import.
- You will also need to account for and possibly pay import VAT (however import VAT payments can be postponed using the ‘postponed VAT accounting’ method, which basically allows for import VAT to be accounted for by a UK VAT registered business through its VAT return, rather than having to pay import VAT upfront , and claim it back as input tax in the relevant VAT return. This available on all imports, not only those from the EU.
- There are also new rules for consignments under £135 from overseas which no longer attract import VAT and instead, for B2C sales, supply VAT is applied at point of sale by the seller, who must have registered with HMRC and account for UK VAT. For B2B sales, the UK customer can account for the VAT through the reverse charge.
- You can delay customs import declarations for up to 175 days after the date of import. You can also delay payment of any customs due until that point and then pay any customs duties owed. This will be possible for all eligible imports received until 30 June 2021.
- You should check whether the goods are controlled, or have excise duty applied in addition to customs duties. If your goods are controlled, it will not be possible to delay declarations.
- After 1 April 2021, additional rules on products of animal origin (POAO) come into force.
Exporting to the EU
From 1 January 2021, the rules for UK companies exporting to the EU are broadly similar to the rules for exporting goods to non-EU countries.
- You will need an EORI number beginning with GB.
- Customs declarations are required and some goods may need export licenses or certificates.
- As with importing, simplified declarations can be used for exporting including a simplified declaration procedure or declaring goods to customs by entering details on your own commercial records. In both cases, you need to provide the rest of the customs export information 14 days later via a supplementary declaration. To use simplified declarations, you’ll need to be authorised by HMRC and registered to use the National Export System.
- UK VAT does not apply to exports, subject to obtaining the necessary proof of export. However, VAT and potentially duty may be due upon importation to the receiving country.
Making online sales
The treatment of online sales from 1 January 2021 depends on where the goods are held/shipped from when the sale is made. We discussed the various scenarios in an article, Brexit: What are the new VAT rules for online sellers? here.
With a career in VAT spanning over 20 years, Nicola advises businesses of all sizes; from start-ups to major international organisations.