Additional registrations (e.g. REX number) may be required. Each party may use trade remedies such as anti-dumping and countervailing duties. Regulatory checks on the borders: e.g. no mutual recognition for (food) safety measures / SPS controls.
At 12pm CET on 31 December, the free movement of goods persons, goods, services and capital between the UK and the EU has ended. The UK has left the EU Customs Union and Single Market. The trade between the EU and the Great Britain (GB) (the UK excluding the Northern Ireland (NI)) is accompanied with customs’ borders, formalities and paperwork including entry and exit declarations after 2020. Imports need to comply with EU/UK product rules and are subject to checks and controls for safety, health and other public policy purposes, including all necessary SPS controls applicable between the EU and the UK. Without a deal, tariffs and quotas would have also been imposed on trade between the EU and UK.
Import VAT will be due, even if customs duties are not payable. UK VAT registered businesses will be able to use the postponed import VAT accounting. See our website for more information about the trade between the EU and UK after Brexit.
In light of the exceptional circumstances of the deal being made just before the end of the Brexit transition period, the deal applies on a provisional basis until 28 February 2021. It needs to be formally approved by the UK and EU various institutions.
Trade deal between EU and UK
The trade deal (FTA) is 1,256 pages long. It provides for zero tariffs and zero quotas on all goods provided the rules of origin (RoO) are met. Such rules are necessary to ensure that the products benefiting from the FTA (zero tarifs, zero quotas) are either wholly obtained from or manufactured in the FTA itself (i.e. the EU and the UK), or sufficiently worked or processed there (e.g. by setting a limit on the value of non-originating materials that can be used in order to benefit from the FTA).
This means that the trade preferences granted under the deal benefit only UK/EU goods and not the goods from “third” countries. For example, the UK tariffs or quotas may be applicable on goods distributed in the UK via a warehouse located in the EU. This may mean double duties, e.g. if non-EU goods have been cleared for customs in the EU and will also face UK tariffs. However, other UK free trade agreements (such as a future US-UK trade deal which will be expected shortly) may provide a preferential treatment for non-EU goods.
Businesses need to check whether they qualify for the preferential treatment and what are the requirements to prove the EU/UK origin of their imports. They are allowed to self-certify the origin of goods. Registered Exporter (REX) registration may be required for exporters to prove the preferential origin. FTA provides full cumulation (i.e. processing activities in the EU or UK also count towards origin, not just materials used). Full bilateral cumulation between the EU and the UK allows EU inputs and processing to be counted as EU input in EU products exported to the UK and vice versa. The EU/UK FTA does not provide for diagonal cumulation.
Businesses need to know Harmonized System (HS) code for the goods because EU/UK FTA contains the specific rules that set out, for every product based on HS code, what the requirements are for that product to be considered ‘originating’.
If for example the origin criterion is based on a value method, then the value of the product as well as the value of all the non-originating and/or originating materials used in the production should be calculated.
The FTA includes a list of processes that, if carried out on non-originating materials, are considered such minor processing that they do not on their own confer originating status, e.g. “simple assembly”. Operations are considered “simple” if neither special skills nor machines, apparatus or equipment especially produced or installed are needed for carrying out those operations. Even if a product meets its product specific rule, if the only processing carried out on non-originating materials is listed as ‘insufficient’, that product will not obtain originating status. Cumulation does not apply for these purposes.
Businesses will need to manage a number of other customs requirements, such as classifying and valuing goods and determining which goods are subject to licensing restrictions or prohibitions.
Other important arrangements of the deal include:
- the mutual recognition of trusted traders programmes (‘AEO’).
- measures for the import of repaired and remanufactured goods.
- the RoO rules are supported by low cost administrative arrangements for proving origin.
- flexibility in collecting documentary evidence to prove origin during the first year, to allow businesses to benefit from the preferences despite the little time available between conclusion and application of the FTA.
- facilitations on average pricing, accounting segregation for certain products, as well as all materials, and tolerance by value.
- common reference definition of international standards and possibility to self-declare conformity of low-risk products.
- limits on the ability to impose import or export restrictions, and limits on fees and formalities in connection with import and export.
The special rules will apply for trade in goods with the Northern Ireland (NI). NI will remain in the EU Single Market for goods. From 1 January 2021, a VAT number of the customer with the "XI" prefix is required for the B2B deliveries to the Northern Ireland (NI) to qualify as exempt intra-EU supplies.
The threshold for cross-border B2C selling from EU countries to NI (so-called EU "distance sales") is £70,000. Businesses making distance sales from EU MSs to NI must register for UK VAT if the value of their distance sales into NI during a calendar year goes over the distance selling threshold.
New checks on movements of goods will emerge between Great Britain (GB) and NI.
Impact on business relationships and on internal business processes
Changes in your internal business processes and controls may be needed to manage the new customs paperwork as well as the calculation and payment of customs duties due. You need to review the commodity codes, customs value and origin of the goods. Check whether your goods attract import duties. Check whether any preferential treatment is applicable based on the customs rules of origin of a FTA. Make the necessary product-specific origin assessments. Take into account various rules such as “insufficient production”.
Possible other areas to consider may include changes to your accounting/ERP systems; notifying stakeholders of new VAT ID numbers; and engaging with VAT advisors and customs forwarders to understand the customs/VAT rules applicable to your goods. Provide stakeholders with the required origin documentation. Additional registration (such as REX number) may be required.
You may find that changes are required in your supply chain or contracts because your deliveries from or to the UK will face additional costs due to the customs duties, paperwork, controls and procedures. Alternatively, use of the customs mitigation procedures could be considered to improve your cash flow and to avoid paying too much in non-recoverable duties.
In addition, a major review of your Incoterms as well as transactions’ VAT/customs mapping may be needed, e.g. because UK will change from EU to non-EU country.
Do you have questions or do you need more detailed information? Please do not hesitate to contact us.