Brexit: Urgent actions for businesses
Brexit: Urgent actions for businesses
As the government continues to negotiate how the UK will trade with the EU after the end of the Implementation Period on 31 December 2020, there are still several areas of uncertainty that are yet to be agreed. However, there are a number of issues that have been settled and will come in to force from 1 January 2021. We have summarised the key announcements for businesses below, and we will be working with our clients to assess how the possible changes may impact their ‘Big Picture’ and consequently any potential actions they need to take.
VAT-Registered Businesses Trading with the EU
When the transition period ends on 31 December 2020, the UK will leave the EU’s Single Market and Customs Union; as such, the UK will operate a full, external border with the EU. Subsequently, HMRC has written to all VAT-registered businesses, explaining the changes to trading with companies within EU nations from 1 January 2021 onwards.
From 1 January, all companies will have to enter import and export declarations regarding ‘controlled’ goods. Examples of ‘controlled’ goods include animals, plants, food and agricultural products, as well as drugs, chemicals and waste. Non-controlled goods will also have new import processes, which will be introduced in three stages in January, April and July 2021.
ACTION POINT: Check if the goods you import fall within the definition of controlled or non-controlled goods and what the new processes will be.
Businesses will be permitted to defer import declarations on many goods for a maximum of six months after 1 January 2021, so long as they possess existing records of compliance. HMRC has also confirmed that postponed VAT accounting may be utilised by businesses to account for import VAT on goods imported from outside the UK, on their VAT returns.
Economic Operator Registration and Identification (EORI)
It will be a requirement for all UK VAT-registered entities undertaking transactions with businesses in the EU, to have a UK Economic Operator Registration and Identification (EORI) number that starts with “GB” in order to be able to import goods from 1 January 2021. EORI numbers will not be required for businesses which only provide services.
ACTION POINT: If you import goods from the EU, apply for an EORI number in advance, as it can take up to a week to be processed.
For any non-UK businesses supplying goods to UK customers with a value of less than £135, then the non-UK entity is required to be VAT-registered within the UK immediately and to charge the customer VAT at the appropriate rate. However, if the sales are made to a UK VAT-registered business, then the non-UK supplier does not have to account for VAT, as a reverse charge will apply to VAT registered customer. For sales which take place through either an offshore or online marketplace, such as eBay or Amazon, the marketplace will be responsible for the VAT. These new arrangements align the thresholds for relief for customs duty, thus minimising the impact on customs procedures.
From 1 January 2021, a UK-specific tariff will be applied to imported goods: the UK Global Tariff (UKGT). This will replace the EU’s Common External Tariff, which will apply until the end of the transition period. The UKGT will apply to all goods imported into the UK, unless an exception applies. An exception would apply if the goods being imported are: (i) from a developing country that is part of the Generalised Scheme of Preferences; or (ii) from a country that has a trade agreement with the UK; or (iii) the goods have a relief or tariff suspension.
ACTION POINT: Check the UK Global Tariff rates that will apply to the goods you import using the gov.uk website, which requires an 8-digit commodity code or a description of the goods being imported.
Exporting goods to the EU
When exporting goods to the EU from 1 January 2021 onwards, businesses will need to make customs declarations. These rules are currently in place when exporting goods to the rest of the world, including Switzerland, Norway, Iceland and Liechtenstein. Businesses will be able to make the declarations themselves or hire couriers, freight forwarders or customs agents to make the declarations on their behalf. The use of agents is strongly recommended by the government to ensure that any potential customs issues are negated.
ACTION POINT: If you export goods to the EU, consider whether you will make customs declarations yourselves, or find an agents to do this for you.
From 1 January 2021, the rules for exporting some types of goods will change. Certain goods will require export licences or certificates and additional rules will be in place for exporting alcohol, tobacco and certain oils. Standards will also need to be complied with in relation to the marking, labelling and marketing of food, plant seeds and manufactured goods, in order for them to be exported to the EU.
As with the import of goods from the EU, businesses will need an EORI number that starts with “GB” to export goods. Businesses will also be able to charge 0% VAT or ‘zero rate’ on the goods which they export to their EU customers.
Prior to exporting goods to EU businesses, UK companies will need to confirm a number of items with their EU customer. These include ensuring that the EU customer can make the necessary customs declarations and possess the necessary licences or certificates to import certain goods. When businesses are exporting goods to the EU, it is important to note that the customer will be responsible for all import documentation and taxes at the border. For any UK businesses which hold stock within EU nations, there will be a requirement to be VAT-registered within those nations.
• Check with EU customers that they are able to make the required customs declarations for the goods which you sell to them.
• Register for VAT in EU states where you hold stock.
There will no longer be a requirement for the completion of EC Sales Lists or IntraStat reporting after the end of the transition period (at the time of writing).
VAT Retail Export Scheme
The VAT Retail Export Scheme (VAT RES) will not be extended to visitors from the EU after 31 December 2020 and will be withdrawn for all non-EU visitors. This means that overseas visitors will no longer be able to obtain a VAT refund on items they purchase and subsequently take home in their luggage. However, businesses and retailers will instead be able to continue to offer VAT-free shopping, consistent with the international principles of taxation, to non-EU visitors who purchase items in store and have them sent directly to their overseas addresses.
From 1 January 2021, different rules will apply to the various types of services that can be provided by UK entities to the EU. General services, such as accountancy, legal and consultancy, will fall outside the scope of VAT when being provided to non-UK businesses. However, there will remain a requirement for businesses to register for VAT locally within EU countries for certain services, including construction, cultural events, training and entertainment.
ACTION POINT: The rules in relation to services are complicated and there are still matters to be decided upon, particularly for financial services. If you provide services to the EU, please seek advice.
After the cessation of the transition period, the rights of your employees may be affected. For any EU citizens, or individuals from Iceland, Liechtenstein, Norway or Switzerland, living in the UK on 31 December 2020, their rights will remain unaffected until 30 June 2021. However, should these individuals wish to remain in the UK after this date, they would need to become a UK citizen or apply to the EU Settlement Scheme. There will be no changes for Irish citizens, who will be able to live and work within the UK as they do now.
From January 2021, the UK will introduce a new points-based system for foreign citizens wanting to move to the UK. The UK government has stated that EU and non-EU citizens will be treated equally, and the aim of the system is to attract individuals who can contribute to the UK economy. Several options will be open to employers to recruit individuals from outside the UK, which include the Global Talent Scheme and skilled worker route. However, there will not be a general route for businesses to recruit at or near the minimum wage.
• Consult with your “non-UK” employees and check that they are applying for the right to remain in the UK after 30 June 2021.
• If you are looking to recruit skilled workers from outside the UK after 1 January 2021, apply for a sponsor licence as soon as possible as the government is advising that applications can take a few weeks to process.
Northern Ireland protocol
Please note that the Northern Ireland Protocol is still under discussion; as such, how the provision of goods and services to and from Northern Ireland will be treated from 1 January 2021 remains unknown.
Disruption to supply chains
With so much to consider, industry groups have warned that Britain’s supply chains are at risk of severe disruption. Indeed, last month, eight of the UK’s leading logistics trade groups wrote to ministers calling for urgent meeting to discuss the enormous challenges facing the industry at the end of the transition period on 31 December. The group fears that there are significant gaps in the government’s efforts to provide a functional cross-border trade system, with concerns that there is a shortage of customs officials and untested IT systems.
As has been well documented, the creation of additional customs protocols at the Port of Dover could see queues up to 7,000 vehicles long; at present, around 17% of imported goods come in by truck via the port. Consequently, there are suggestions that demand for air freight could rise substantially, as road freight becomes less appealing.
It may be necessary to review the appeal of inexpensive, overseas suppliers, in favour of more local sources, in an effort to maintain good supply chain management. Alternatively, businesses may need to consider increasing stocks of vital components now and whether they have the working capital available to do this.
ACTION POINT: Review your supply chains now and prepare for any anticipated problems ahead of the end of the transition date.
With fewer than 70 days to go until the end of the Brexit transition period, it is imperative that you act now to ensure that your business can continue to operate as usual from 1 January 2021. We will continue to keep you updated on any developments as the negotiations between the EU and UK government continue. However, if you have any concerns or require more in-depth advice in the meantime, please get in touch with your usual Creaseys contact.
Our office remains open, with the team working from home where they can. Please continue to use the main telephone number, 01892 546546, or any of our usual channels to communicate with our team. If the main line is busy, please do leave a message and we will get back to you.
Please note: The information above is not an exhaustive list of all actions required by businesses in preparation for the end of the transition period, and so must not be treated as such. The information above is based on our understanding and interpretation of the government's guidance as of 5pm on Tuesday 27 October 2020. Changes to government guidance on a daily basis may mean that this information is not accurate or complete beyond this time.