01 Jan Businesses Get Ready for Brexit

What we know of the arrangements so far

Dear Client,

Brexit Transition: Businesses Get Ready for Brexit 1 January 2021

It feels as if we have been navigating high waters for some time now and just as the waves seem a little calmer, there may still be some steering required to get around all of the Brexit regulations which are likely to affect many businesses in different ways!

The UK officially begins its transition out of the EU/EEA on 1 January 2021. UK Businesses that trade or provide services in the EU or employ EU Nationals will need to have some plans in place for the transition.  There are a number of key considerations and some contingency planning which may need to be actioned by you if you are in this category.  In this news update, we look at some of the more prominent considerations from an accounting and tax perspective and signpost where you can find further information.

We hope this will be helpful to you, if you would to discuss these with us, please do contact us.

Employing EU/EEA/Swiss-national

Employees who are from EU/EEA/Swiss Nationals, living in the UK as at 31 December 2020 will need to register for the settlement scheme by 30 June 2021 at the latest.  This will ensure they retain the right to continue to live in the UK.

You can use the EU settlement Scheme employer toolkit to help communicate with your employees Click here for the toolkit.

Import and export

The UK/EU withdrawal agreement expires at 11pm GMT on 31 December 2020.  After that date the UK becomes a customs separate territory from the EU.  As such, from 1 January 2021 if you trade within the EU, you will need to make customs declaration of goods that you import and export.

Preparing to import goods from the EU to Great Britain

Tariffs or customs duties are a tax levied on imports. This may be one of the biggest changes. As it stands there are no tariffs on trade wholly within the EU customs union but unless the UK reaches a free trade deal this will change and may depend on country by country agreements. Tariffs can be significant; the rate of customs tariffs will depend on:

• The customs value of the goods
• The category the goods falls into
• The country they are being imported into; and
• Where the goods originate

There are various methods of calculating the customs value of goods, again if you need help with this please do contact us.

Exports and new rules on types of goods

From 1 January 2021, the rules for exporting some types of goods will change.  Check the new rules here.

You may also need to check that the EU business you are trading with is ready and regulation fit.

Things to consider:

• Apply for an EORI number

An Economic Operators Registration and Identification number ( EORI number) is a European Union registration and identification number for businesses which undertake the import or export of goods into or out of the EU.  You need an EORI number that starts with GB to import and export goods from 1 January 2021. You can apply for an EORI number here 

You may also need an EU EORI number if your business will make declarations in the EU

• Use a Customs intermediary

You can make the Customs declaration yourself but due to the complexity of declarations it may be more practical to use a courier, freight or customs agent.

• Apply for a Duty Deferment Account (DDA)

This allows the trader to defer the payment of customs duties and taxes on individual consignments and instead make a payment once a month

• Prepare to pay or account for VAT on imported Goods

From 1 January 2021, if you are VAT registered and completing full customs declarations and have chosen not to defer your customs declaration, you can choose to adopt postponed VAT accounting to account for import VAT via the VAT return.

UK businesses offering services to the EU

The UK will no longer operate under the European Economic Area (EEA) regulations for the cross-border trade in services, therefore, from 1 January 2021, services provided by UK businesses and professionals will be regarded as originating from a ‘third country’ (i.e outside of the EU). This means that the rights and protections provided by the EU Directives and EU Treaty rights of freedom of movement and freedom of establishment will no longer apply to the UK as businesses will no longer be treated as if they were local businesses.

If you provide services in the EU, Iceland, Liechtenstein, Norway or Switzerland you will need to check the regulations of the country you are doing business with to understand how best to operate.   HMRC has provided a selling service guide to each country which can be accessed here.

VAT on sale of digital services

The “mini one stop shop” (MOSS) allows businesses that sell digital services to consumers in EU member states to report and pay VAT via a single return and payment. UK businesses can continue to use the system after the transitional period ends by registering in an EU member state.

UK businesses will lose access to the EU VAT refunds system after the transitional period ends so claims should be made before then.

HMRC is introducing new procedures for parcels sent into the UK from abroad. After the transitional period ends these procedures will apply to parcels sent from the EU. For parcels with a value of less than £135 the business sending the parcel will need to register with HMRC’s digital system and settle any VAT and duties due online.

Financial Impact

In addition, these changes may result in increased costs, affect sales and collectability of debtors, resulting in pressure on cashflow.  It may be a good time to look  at how the changes will affect your profitability and cashflow in more detail in order to be as prepared as possible.

Final Words

This is a complex area and a lot of information to absorb, it is also changeable as new information and regulations are formed over the next few months, we will need to be both vigilant and adaptable in order to get through the red tape.  If you do trade in the EU then some action is required before 1 January 2021.  The most pressing seems to be to obtain your EORI number and advising EU National employees.

If your business is complex and you have a number of different ways you interact with the EU or you are concerned about the impact on your profitability and cashflow then please do contact us so we can help you.