What's the issue?
Throughout its membership of the EU, and during the transition period, the UK has benefited from no tariffs and very little red tape or customs processes on imports from the EU27. This will change on 1 January 2021, as new customs formalities will apply to all EU27 and UK trade. In addition, the introduction of the Northern Ireland Protocol will entail some new arrangements for goods movements into Northern Ireland from Great Britain. This means that businesses on both sides of the Channel need to prepare for the introduction of new customs processes, for example by obtaining an EORI number and determining the appropriate commodity codes for their goods. Whatever the terms of the Free Trade Agreement ("FTA") between the EU27 and the UK, new customs processes will be in place.
Where are we now?
The UK Government has announced a phased approach to the introduction of customs procedures on goods being imported from the EU from 1 January 2021. These temporary measures will apply regardless of whether an FTA is struck. However, they are intended to smooth, rather than remove, the burdens on importers. In summary:
- From 1 January 2021 most EU imports will be allowed into Great Britain without customs paperwork being provided upfront. Businesses will have six months to make customs declarations and pay any tariffs or import VAT. However, these relaxations will not apply to controlled or excise goods. Physical checks will begin but will take place away from ports to ease congestion. Only certain high-risk animals and plants will be subject to compulsory physical checks.
- From 1 April 2021 all EU imports of animal products and regulated plants and plant products will mostly be subject to normal rules: paperwork will be required on entry to the UK, and mandatory physical checks will take place. It is expected that physical checks will continue to take place away from ports.
- From 1 July 2021 the UK government intends that imports into GB from the EU will undergo the same procedures and checks as goods from any other country, so paperwork and tariffs will need to be provided or paid upfront. The result is that many importing businesses will be making supplies subject to UK VAT for the first time. VAT-registered businesses will be able to make use of postponed VAT accounting on imports. Physical checks will be a possibility for all goods and will occur at ports, although in practice only a small minority of goods will be checked.
- Northern Ireland – Special rules apply for imports into NI from the EU in order to avoid a customs border between Northern Ireland and the Republic of Ireland; movements between Great Britain and Northern Ireland will also have new implications.
Special VAT rules, not yet published, will apply for sales made through online marketplaces.
What impact does this have?
Both UK and EU businesses will be impacted by the changes, and should be prepared to anticipate these new customs and VAT procedures. No matter how smooth the transition, significant changes to the way the majority of our imports from the EU (52% in 2019) enter GB will have an impact. Businesses that are actively involved in importing goods from the EU should take concrete steps now to prepare. As a starting point, GB importers should: (i) understand the applicable customs requirements and tariffs for the goods they import under the UK’s Global Tariff programme; (ii) ensure they or their customs intermediary is authorised to use simplified customs procedures, including obtaining a Duty Deferment Account; and (iii) prepare to pay VAT in relation to GB imports and supplies, with VAT registration often needed for the first time because of the UK leaving the EU VAT area, and also to benefit from VAT-postponement on imports. EU businesses should also take steps to prepare, including: (i) apply for an EU EORI number; (ii) determine who will act as declarant for customs purposes; and (iii) registering to a national customs database. Supply chains where goods move between Great Britain and Northern Ireland will require careful scrutiny.
Even with an FTA agreed, significant changes to the way in which we trade with the EU are inevitable. This is especially true as businesses are likely to have little more than a month to adjust to any changes brought in by an FTA, which underlines the importance of preparation now.
See also Beyond Brexit transition – VAT on cross-border movement of goods
Authored by Aline Doussin, Karen Hughes, Rupert Shiers, Imogen Brooks and Bea Watts
