Analyses & Studies

Supply chain beyond Brexit: tax and customs implications

A recent webinar with BDO explained that the post-Brexit period signals a lot of change for companies in Britain and EU.

From 1 January 2021, businesses have needed to comply with new trade conditions, including customs declarations and duties, as well as VAT on trade between Britain and the EU.

A recent webinar hosted by the French Chamber welcomed a panel of speakers from the accounting and business advisory BDO to discuss the tax and customs challenges that businesses are currently facing.

According to Hakan Henningsson, Director and Customs & International Trade Specialist at BDO, now free movement between the UK the EU is over, import and export declarations will be a requirement, and import VAT will need to be paid on goods coming into the UK. Customs duties could apply, paid via a deferment account or through the freight forwarder.

The UK will be treated as a third country from a customs perspective, excluding NI protocols goods. It will depend on the incoterms on who makes import and export declarations.

Previous HMRC authorisations on the trade of goods may or may not be valid (likewise one made by French authorities may or may not be valid). ‘In many ways, we are starting from scratch,’ says Henningsson.

Any company who imports into the UK or exports out of the UK will now need a UK EORI number, which is assigned to importers and exporters by HMRC, and is used in the process of customs clearance for both import and export shipments.

EORI is the acronym for an Economic Operator Registration and Identification number. You’ll need an EORI number to clear your goods through UK Customs. They are allocated to importers and exporters by HMRC pending the submission of an online application.

EU EORI numbers will no longer be valid for imports into the UK or exports out of the UK. If an EU business wants to act as UK importer or exporter, it will need a UK EORI and in addition they need to appoint an Indirect Representative in the UK, such as a UK freight forwarder, who will have joint and several liability for the UK customs debt. The same applies for a UK business who wants to act as EU importer or exporter.

VAT implications for EU businesses

According to Martyne Pearson, Director, International VAT Specialist, for B2B trade EU businesses must now be set up as an exporter to bring goods to the UK, and simplifications for EU movements will not apply (for example: holding stock for call-off, and triangulation of goods between three or more countries) – all of these rules are gone.

For the B2C space, the distance sales scheme (ecommerce) will no longer apply, and there are expected changes to EU rules in July 2021 on non-established shipments to the UK, in terms of selling into the UK for private individuals.

The importer will now pay import VAT and duty, if applicable, and EU business may need UK VAT registration.

Since 1 January 2021, businesses registered for VAT that import goods into the UK from anywhere in the world can use a new system called postponed VAT. This lets them account for the VAT on their VAT return, rather than paying it immediately.

Supplies from the UK to the EU

Now that goods moved from the UK will be exports out of the UK and imports into the EU, businesses have three options to manage importation and make new and additional declarations. This can be done via a UK business, an EU customer, or an indirect representative in the EU. For each movement there need to be two declarations (export and import) with the responsible party outlined in the incoterms.

In many cases, it may be ideal that the EU customer assumes the role of the importer, as it may not be commercially possible for the UK exporter to become an EU importer. All importers will need an indirect representative and EORI number. Often, the freight agent or importer might handle these areas, but this needs to be clearly defined in the incoterms.

In all cases, the origin of goods needs to be considered for preferential zero duty rate. To claim preferential rates of duty, your product must originate in the EU or UK (as the exporting country) as set out in the Trade and Cooperation Agreement ‘Rules of Origin’ and the ‘Product Specific Rules of Origin.’

However, the rules of origin are highly complex, and to fully comply will require looking at the goods on a case-by-case basis. It should also be noted that country of origin rules differ from trade agreements and products within trade agreements, in terms of tolerance of a product to meet the criteria of the agreement.

Not all EU customs law will be the same in the UK, however companies can continue to access a range of customs simplifications and relief, which largely work in the same manner as before Brexit. These include customs warehousing, which allows the owner to hold imported non-community goods in the community and choose when he pays the duties or re-exports the goods. The same goes for inward processing and returned goods, EU goods transported prior the finalisation of the transition period, as well as transit to the other EU countries (for example, from France to Ireland through UK without stopping).

Authorised Economic Operator (AEO) certificates are still valid – there is now an equivalent UK scheme (with different logo). An AEO is an economic operator who, by satisfying certain criteria, is considered to be reliable in their customs related operations throughout the European Union (EU) and is therefore entitled to certain benefits.

Depending on the type of AEO authorisation applied for and granted, these can include either easier access to certain customs simplifications, special procedures, deferment guarantee reductions/waivers or certain facilitations from customs security and safety controls, or both.

Brexit to do list

  • Map your supply chains and distribution channels with incoterms – who is the importer /exporter?
  • Check that you/your shippers know what to do from 1 January:
    • Do you need to talk to your customers/suppliers about incoterms?
    • Does the designated importer/exporter (you/your suppliers/your customers) meet the customer criteria?
  • Who will be making your import/export declarations?
    • If a 3rd party, do they have capacity? Compliance remain fully or partially your responsibility.
    • If in house, how much will it cost and how soon can you be operational?
  • Do you need to acquire any UK/EU VAT registrations?
  • Will your goods benefit from zero tariffs under the ‘origin’ rules?
  • Can your business benefit from any reliefs such as: UK Customs Warehouse and/or Inward Processing Relief authorisation? Authorised Economic Operator authorisation?
  • Do you need to ‘upskill’ your staff and management through customs training?
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