The UK has left the EU with a free-trade deal that brings new issues for UK SMEs and means they’ll need to change how they work in some key areas. What might the impact be on your business?
It’s hard to keep track of time at the moment and it certainly doesn’t feel like only a few weeks since the whole nation was anxiously waiting for news of the Prime Minister’s Deal or No Deal negotiations with the EU.
In the end – on Christmas Eve, no less – a deal was reached. Since then, as the details have been worked out in practice on the borders of Europe, it’s been a bumpy time for British businesses.
That’s partly for quite boring reasons: the government guidance in many areas isn’t complete and reliable and people have been struggling to fill in forms correctly. You might have seen this story about shipments turned away from Northern Ireland because their manifests listed only ‘food’ and of shellfish rotting aboard lorries due to extra checks at the French border.
There are more than 1,200 pages of documents accompanying the deal, covering everything from the rules around Europe-wide sales of digital products to cooperation on tackling VAT fraud.
Like everyone, we’re still digesting the details – and waiting to see how some of this plays out in practice, and when tested in court or at tribunal. In the meantime, here are some of the key things to watch out for if you do business in the EU.
VAT and import duties
Since 1 January 2021, it’s been a requirement for VAT to be collected at point of sale instead of at point of importation. In practice, this means retailers sending goods to the UK from overseas need to register for UK VAT and submit a return to HMRC.
They’ll also be subject to import duties and a requirement to make customs declarations. We’re all used to that on orders from the US but have perhaps been spoiled by decades without such requirements when buying from the EU.
It’s perhaps unsurprising that many firms have decided instead to stop selling to the UK, at least temporarily while they work out the rules. That could be a problem for UK businesses which rely on a steady supply of foreign goods, such as delicatessens selling Greek olive oil, or retailers specialising in Japanese cameras.
If your business relies on goods from the EU, you’ve probably already made changes to soften the blow such as identifying alternative UK products where possible. If not, this would be a good time to undertake a risk assessment. What will you do if the supply of a certain line dries up, or it increases in price? Can you increase the amount of stock you hold to tide you over if supply chains are disrupted?
Trading requirements for exporters
On the flipside, for domestic businesses that supply goods to the EU, it’s become necessary to record data on any customs declarations for VAT purposes.
On exports to the EU, most goods are now zero-rated for VAT, although a slew of small print applies. For example, time limits apply on the zero-rated status of goods exported to the EU, to ensure they really are being “consumed outside the UK” and are not just being designated as exports to minimise VAT.
When exporting goods to the EU exporters now need to make customs declarations, as they’re used to doing with exports elsewhere in the world. They can also use a courier or customs agent to do this on their behalf.
You’ll need a UK economic operators registration and identification (EORI) number to ship goods to the EU, too, which will always begin with GB.
Northern Ireland – it’s complicated
A large part of why getting a Brexit deal signed off was so difficult was the complex situation of Northern Ireland which shares a land border with an EU nation, the Republic of Ireland.
In the end, it was agreed that Northern Ireland would remain in the EU’s single market for goods and apply EU customs rules at its ports, under the Northern Ireland Protocol.
The Protocol sets out that goods from Great Britain (which comprises England, Scotland and Wales but not NI) not considered to be at risk of leaving the UK customs territory (that is, being moved on to the Republic of Ireland) will not pay tariffs. Otherwise, EU tariffs will apply.
What might be considered ‘at risk’? That’s not been pinned down in plain English but the Joint Committee responsible said on 23 December 2020:
For the purposes of determining whether a good is at risk of onward movement into the EU, the decision states that goods will not be considered at risk where the EU tariff is zero, or – in cases where the good is brought in from neither the UK or the EU – the EU tariff is lower than the UK tariff.
In practice, regardless of the detail, if you ship goods to Northern Ireland from England, that means you now need to make declarations and potentially pay tariffs. You might also find the process slower than usual, at least for a while.
One other option if you have a presence in Northern Ireland – a retail outlet, for example – is to register as an ‘authorised’ firm via the Government’s UK Trader Scheme.
For now, document everything
As the regulations change or are refined, it makes sense to keep more detailed records than usual.
In particular, some of us in the accountancy profession have taken to attaching date stamped copies of government guidance to client records.
That way, if any decisions we make are later challenged by HMRC, we can show that they were arrived at in good faith, in line with advice available at the time.