Brexit Myth-Busting: VAT and Customs Duty Considerations

Jan. 11, 2021, 8:01 AM

While organizations would have welcomed the trade deal between the U.K. and EU, signed on December 30, 2020, it came so close to the end of the Brexit transition period on December 31, 2020 that many had insufficient time to fully understand its implications on their activities before it took effect. As people return to work their focus will now be on understanding what changes have taken place as a result of Brexit and the terms of the deal.

Three Significant Points for Businesses

Businesses trading in goods are likely to face the greatest changes from a value-added tax (VAT) and customs duty perspective, and there are three significant points such businesses should keep in mind.

Firstly, a myth of the trade negotiations is that having “a deal” means that frictionless trade between the U.K. and EU will continue. It will not. While it is welcome news that there are zero tariffs and quotas on trade in goods between the U.K. and EU for goods that meet stringent origin conditions, there will still be friction in the form of customs declarations. It is necessary for businesses to submit import and export declarations when goods cross the U.K./EU border.

This will be a new procedure for many, so obtaining assistance from an intermediary such as a customs agent is recommended. The Northern Ireland Protocol has taken effect and means that Northern Ireland will be treated as remaining in the EU for trade with the EU, but as being within the U.K. for trade with the U.K.

Businesses involved in trade with Northern Ireland will need to review what additional administrative or VAT requirements now exist.

A second important area is that “zero tariffs” only applies to goods which originate in the U.K. or EU. Goods which originate from another country may not fall within the parameters of the U.K./EU trade deal, meaning they are potentially subject to positive rate duty when imported.

Rules of origin are a complex part of the customs duty laws and professional advice is recommended when assessing the “origin” of goods, particularly where the item is subject to various stages of manufacture in different countries.

In order to benefit from zero tariffs, it is essential that businesses know the correct commodity codes for their goods, and understand the specific origin rule which applies for each commodity code.

Thirdly, a significant change for U.K. businesses selling goods to customers in the EU and vice versa is the potential to have to maintain overseas VAT registrations in the destination country or countries. This is likely to be required where the supplier acts as “importer of record” into the destination country, as the VAT rules treat the supplier as importing the goods and then subsequently making a sale of the goods in that country.

Maintaining overseas VAT registrations is not always straightforward even when the preparation of VAT returns is outsourced. The U.K. has also introduced new rules for sales of consignments valued at 135 pounds to U.K. consumers that require the overseas seller to register for U.K. VAT and account for U.K. VAT on the sales.

Call to Action

Many businesses made Brexit contingency plans last year and at the heart of those arrangements was a mapping of their legal and physical supply chains to identify areas of potential change. These plans should be revisited to assess the impact of the trade deal.

It seems almost certain that there will be actions that businesses need to take to adjust to the U.K.’s new trading relationship with the EU.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Robert Marchant is VAT and Customs Partner at national audit, tax, advisory and risk firm, Crowe.

The author may be contacted at: robert.marchant@crowe.co.uk

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