Even with perfect vision, no-one could have foreseen how difficult a year 2020 would have been for UK businesses. However, as we head towards 2021, and the end of the Brexit transitional period, the fresh challenges involved in the import or export of goods and services from the UK are clearer to see.
If we look at some of the challenges resulting from the changed relationship with the EU, we can consider what steps businesses should be taking now to prepare for 1 January 2021.
Movement of goods
For the first time since 1993, any goods moved between the UK and EU will require presentation of the relevant customs declarations. For any declarations lodged with the UK authorities, a UK Economic Operators Registration and Identification (EORI) number will be needed. Importantly, if UK businesses will also be responsible for import or export declarations in the EU, a separate EU EORI number will be required. UK businesses should ensure that they have the appropriate EORI number in place in advance of 1 January.
The end of the transitional period has an impact on the Tariff rates that apply not only to imports from EU countries but, as the UK will no longer be covered by the EU Tariff, also to imports from the rest of the world. The new UK Global Tariff will be set on a non-preferential basis using the ‘most favoured nation’ tariff schedule of the World Trade Organisation (WTO).
Businesses should ensure that they understand any changes to the duty rates that will apply to their non-UK sourced goods from 1 January 2021. Considerations may need to be given to whether it remains economically viable to source goods from EU countries or whether there is a need for businesses to review their supply chain.
The commercial terms agreed for cross border transactions will become particularly important. These commercial terms, called Incoterms, determine whether it is the seller or customer who is responsible for the customs declarations and any import duties. Trading with the wrong incoterms can lead to delays in processing the customs documentation and potentially unexpected VAT or duty costs which can make a significant impact on the profitability of these contracts.
No changes to VAT?
The UK Government has indicated that there will be minimal changes to the VAT rules after Brexit. However, UK businesses should not think that this means that they will be unaffected next year. One of the main, positive changes for UK businesses will be the introduction of a postponed import VAT regime which will avoid the cashflow cost of import VAT.
However, UK companies may have a requirement to register for VAT in an EU member state to maintain the benefits of some EU VAT simplifications such as, distance sales, call-off stock and triangulation.
In addition, as a non-EU company, UK businesses may need to appoint a VAT fiscal representative in other EU jurisdictions. Currently 2/3rds of EU countries require the appointment of a VAT representative, with all of the associated costs that this brings.
One sector that will be particularly impacted by these Brexit changes will be the e-commerce industry. Amazon has announced that UK Fulfilment by Amazon (FBA) operations will be split from their EU operations. 1 January 2021 will see an end to FBA inventory transfers between the UK and EU. As a result, without EU stocks, UK Amazon sellers will see their market shrink from 446 million potential EU customers to only 67 million Brits.
Consequently, in order to maintain a pan-European business model, UK e-commerce businesses may be forced to set up an EU based stock facility with all of the issues with registration, VAT fiscal representation and EORI numbers that that entails.
Rather than move blindly into a post-Brexit world, UK businesses need to use the last few days of 2020 to take steps to avoid potential issues, taking professional advice where necessary.
For more information on how we can help you prepare your business for Brexit, please get in touch with Alistair Duncan, Head of Indirect Taxes.