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Brexit planning: Customs and VAT post the transitional period

10 November 2020: With less than 30 working days to go until the Brexit transition period ends, the ICAEW Tax Faculty delved into all things VAT and customs for a special webinar covering the impending changes to import and export rules.

To help plot a course through the minefield, tax experts Stephen Dale FCA, indirect tax expert with French firm Hedeos Société d'Avocats, and Liam Dushynsky FCA, indirect tax director at PKF-Francis Clark Chartered Accountants, were on hand to explain some of the more complex issues businesses are facing, with help from Frank Haskew, head of the ICAEW Tax Faculty.

The webinar is available in full here, along with the slides covering various timelines, graphics and further detail on what to expect. Below are our main takeaways from what the audience said was a crucial and informative session.

Get familiar with customs duty

The UK is in the single market and customs union until December 31, but from January 1, how business is conducted and how supply chains operate will change. 

“The key thing is there will be a border, regardless of any free trade deal,” said Liam. “There will be paperwork and border checks; that frontier is back.”

Whatever method of accounting for VAT on imported goods applies, checks to ensure that the data on the customs declarations is accurate will be critical for VAT purposes, for all imports. This will be the primary method of ensuring that the correct import VAT is accounted for and paid, the panel explained, and businesses must prepare for the scrutiny.

The UK will not require importers (of non-controlled goods) into the UK to produce post-Brexit customs declarations or pay any tariffs between January 1 and June 30 2021, but from July 1, 2021, it becomes business as usual in that imports and exports via the EU will be treated the same as any other non-EU state, such as the US or China. 

“We are losing a lot of the EU systems to be replaced with UK systems, and some of these movements will require notice of 24 hours or so in advance,” said Liam. “From July 1, you’ll have to route your goods through border control posts, so bear in mind there could be delays.”

If you have not heard of the Border Operating Model, go download the 280-page document, Liam said. “This is your new bible for EU trade. I would recommend getting it. It will be a live document.”

Re-thinking your supply chain 

It is critical for importers and exporters to establish (or re-establish in some cases) relationships of who is doing what in each country, right now, the experts said.

“Map out your supply chain routes, and think about what you are doing now and what you should be doing in future, as all your future transaction chains will be affected,” said Stephen.

There are also many reliefs available, such as customs warehousing and inward processing relief some businesses may not have heard of, but may benefit your business. 

“Look into how you apply for reliefs and what the ongoing requirements are,” Stephen said. 

“Depending on what contracts you have with your customers in Europe you may have to factor in that goods could take longer to get there, meaning you are hit with extra costs and admin.”

Factoring in which border posts your goods will travel through to the UK is also critical; some 85% of EU trade to the UK goes through France. 

“There is a lot of paperwork required that there wasn’t before. It’s certainly not the end of the world to map it all out now, as fixing one problem can fix several,” said Stephen.

The importance of EU EORI numbers

Central to the future relationship of firms exporting and importing between the UK and EU is an Economic Operators Registration and Identification (EORI) number. Every business will need one to transit goods between the UK and non-EU countries from January 1, and may also need one if moving goods to or from Northern Ireland.

Not having an EORI means increased costs and delays; if HMRC cannot clear your goods you may have to pay storage fees. It can take up to a week to get one in some cases.

Some of the webinar audience questioned the panel on the difficulties involved, stating in their experience specific EU states had refused to issue an EORI to UK businesses not established in the bloc, however this is not insurmountable, the panel explained.

“If you can’t get one in the country you wanted, it may be a case of shopping around; you only need one for the whole of the EU. An education program is being carried out across the EU to ensure states are more willing in future, the panel said, however the main point is to keep trying until you secure a number.

A free-trade deal doesn't mean less paperwork

“If the UK secures a free trade deal, businesses may not have to pay for some declarations, but there are still a lot of implications that will come into force.” Europe has 40 free trade agreements around the world, Liam said, and while the UK is trying to mimic some of the continuity agreements, they are not all in place yet. 

Businesses that import from the US or China, for example, and then sell into the EU or other markets must consider the relationships between each of those geographies, where in the past they did not necessarily have to do so.

“If you are selling or buying from countries where the EU has an agreement but the UK doesn’t, there will be duty implications for those transactions,” he said. 

E-commerce and distance-selling businesses

The impending changes for e-commerce trade between the UK and EU are enormous, Stephen said. There are three systems that will impact how e-commerce businesses operate and declare VAT between now and July 2021, and firms must familiarise themselves with each system.

The European Commission Action Plan, published in July 2020, has a further outline of what is in store for digital VAT, but many of the proposals have not been ratified. “There is an ambitious timetable to get significant changes made to the EU VAT system and it's important to keep track of what is happening on the EU side,” said Stephen. “Don’t ignore what is going on in the EU as the changes in the pipeline will have a significant impact on UK businesses.” 

To watch the webinar in full click here.