Whilst the UK formally left the European Union on 31 January 2020, it has remained in the single market and customs union as part of the ‘transition period’. Throughout that time, the UK and its businesses have continued to trade tariff-free with Europe in exactly the same way as before Brexit. Once the transition period ends on 31 December 2020, the UK will move to new trading regime.
Negotiators are still working on what that new UK-EU trade regime will look like and there remains the possibility that there will be no deal. This would mean the UK switching to World Trade Organisation (WTO) rules.
Either way, businesses are being urged to prepare for both scenarios as there will be real and significant changes. Here’s a summary of some of those important changes from 1 January 2021.
1. Customs declarations
If your business imports or exports goods in and out of the European Economic Area (EEA), you will need to make customs declarations from 1 January 2021.
- This involves submitting a full declaration whenever the goods enter the UK or EU (unless you are putting them into temporary storage).
- It’s a complicated process and you may want to use an intermediary such as customs agents, freight forwarders, or fast parcel operators.
- If you’re doing this yourself without an intermediary, you can do so online via the Customs Handling of Import and Export Freight (CHIEF) system.
2. Duty deferment
If you’re a business that imports materials and products into the UK, you will also now need to pay import duties on some of those goods. The Duty Deferment Scheme can help to ease the admin burden and reduce cash flow pressures.
- Having a Duty Deferment account enables you to defer customs duties, excise duties, and import VAT on all consignments into a single monthly payment paid via Direct Debit.
- If your business is registered for VAT, it can also account for import VAT on VAT returns from 1 January 2021.
3. EORI number
In order to move goods between the EU and the UK, your business will need to have a UK EORI number (Economic Operator Registration and Identification). This does not apply to services.
- Having an EORI number will significantly reduce costs and delays. For example, if your goods can’t be cleared at the border you may need to pay storage fees.
- If your business is VAT-registered and has traded with Europe, HMRC may have already auto-enrolled you.
- All businesses that are below the VAT-threshold will need to apply here. The application process is around 10 minutes and will take around a week to arrive.
- If your business makes customs declarations in the EU, it will need an EU EORI number. This is also needed for any EU company that wishes to receive goods from a UK supplier. If you trade with Northern Ireland you will need an EORI number that begins with XI – you first need a GB EORI number to apply.
4. Three-stage imports process
Full customs controls on goods entering the UK from the EU won’t apply until 1 July 2021 and, instead, be phased in three stages. Associated tariff payments can be deferred until the customs declaration has been made later on in the year.
- Stage 1: from 1 January 2021
Customs checks will apply to controlled goods such as tobacco and alcohol. Businesses importing all other goods can delay payments and submitting declarations payments for up to six months.
- Stage 2: from 1 April 2021
All products of animal origin (POAO) – meat, dairy products, honey, and eggs – and all regulated plants and plant products will also require pre-notification and relevant health documentation.
- Stage 3: from 1 July 2021
Customs declarations will be needed at the point of importation for all goods traded between the UK and EU. Tariffs will also need to be paid on these goods too.
5. Global tariff
The government has introduced a new global tariff aimed at cutting costs for UK businesses and consumers.
- Tariffs on a number of goods have been ‘liberalised’ and ‘simplified’
- Goods that will have zero tariffs include dishwashers, freezers, tampons, bay leaves, cocoa powder, and Christmas trees. In theory, these are now cheaper to import as the tariffs were previously above 0%.
- Use the UK Global Tariff tool to check the tariffs that will apply to goods you import from 1 January 2021.
6. Customs Grant Scheme
Grant funding is available to help companies that do their own customs declarations.
- The grant will support recruitment, training/upskilling, and IT (updating customs software, etc). The allowance can also cover salary costs for new/redeployed staff up to a limit of £12,000 per person and £3,000 for recruitment costs of new employees.
- Applications are now open and will close on 30 June 2021 or earlier if all the £50m funding has been allocated.
7. VAT changes
From 1 January 2021, British businesses will need to apply VAT when trading with EU countries in the same way that they currently do when trading with non-EU countries. This includes:
- Postponed accounting
This means that businesses won’t need to pay import VAT when their goods arrive at the British port or airport. Instead, they’ll need to account for it on their VAT return. This will apply both to imports from the EU and non-EU countries.
- Digital services
British companies that sell digital services to EU consumers will no longer be able to use the UK’s VAT Mini One Stop Shop (VAT MOSS) to declare sales and pay VAT due in EU member states. All final returns for MOSS should be submitted by 20 January 2021. Businesses can still use MOSS after 1 January 2021 but will need to register in an EU member state. More information available on the European Commission website. Alternatively, businesses can opt to pay VAT in each member state where they sell digital services to consumers. Again, see the European Commission website for details on how to register.
VAT collection will shift from the border to the vendor’s website. Sellers will charge and collect output VAT from the UK website, usually at the online checkout. You will also need to declare this VAT.
If your business has EU nationals on the payroll, you should encourage these staff members to apply for the EU Settlement Scheme so they can continue to live and work in the UK. They must apply before 30 June 2021.
After the transition period, you’ll still be able to hire staff from EEA countries, however, the immigration rules are changing to a points-based system.
- People who want to live and work in the UK after 1 January 2021 will need to gain 70 points to be eligible to apply for a visa.
- The first 50 points will be awarded for meeting requirements such as: an ability to speak English to an acceptable level; having a job offer from an approved employer; the role being at an A-level equivalent skill level (minimum salary of £20,480).
- Applicants can earn the remaining 20 points by: earning more than a “general salary threshold” of £25,600; having a job offer in a “shortage occupation”; being a ‘new entrant’ to the labour market; holding a relevant PhD.
If your business work involves international travel, you should be mindful of the post-transition impact on visas and health insurance.
- British passports must have at least six months left before expiry in order to be valid for travel to EU countries.
- Tourists won’t need a visa for stays of less than 90 days to EU/EEA countries. However, they may need a visa or permit if they wish to stay longer, work or study, or for business travel.
- The European Health Insurance Card (EHIC) will only be valid until 31 December 2020. Access to state health care may not be possible from January onwards, so visitors with a pre-existing medical condition are advised to get comprehensive travel insurance.
- From 1 January 2021, there’s no guarantee that free mobile phone roaming will continue in the EEA. Check with mobile phone operators for more information.
10. Data protection
- The EU is currently undertaking an ‘adequacy assessment’ of the UK to establish whether the country has a sufficient level of data protection. If the UK is found to be ‘adequate’, then personal data should flow as freely as it did before.
- If the EU hasn’t made an adequacy decision before the end of the transition period, EU laws could apply. Check out the Information Commissioner’s Office (ICO) for more information.
Businesses have already had a difficult year and the end of the transition period will present more challenges. We’ve created a dedicated guide to help your business understand and prepare for Brexit. We also recommend speaking to professionals such as your accountant to understand the more complex issues around VAT and customs duties.