Since formally leaving the EU on 31 January 2020, the UK has been in an 11-month transition period, scheduled to end on 31 December 2020. So, we’ve all been enjoying a bit more breathing space, but time is running out.
The reality is that many companies have delayed their business preparations due to Covid-19 and will now urgently need to make some preparations. Are you ready? If you are, well done. Don’t bother reading further. But if – like most businesses – you are not, you might want to read on.
31 December 2020: BREXIT-day
On this day, the UK leaves the EU’s Customs Union and Single Market. From 1 January 2021, the UK will no longer follow EU rules. Depending on how negotiations have gone, the UK will either leave with a deal, or no deal.
If the UK and EU fail to reach an agreement before 31 December, it’s no-deal. The UK will start trading with the EU under World Trade Organisation (WTO) terms. All imports and exports will face EU tariffs and customs checks, and the UK will be hit with “third country” status. Many economists and business groups predict that no-deal will severely disrupt the UK economy.
Assess and think strategically now
The starting point is to understand how your business model and structure will change. Assess, assess and assess more. There are many questions of course, and everyone’s circumstances will be unique. Here are a few examples to get you started:
- Where do you buy your products and services from? How are your supply chains set up? Do you need to set up alternative arrangements? Will you need to submit customs declarations?
- Who are your customers and what are your contracted terms? If a no-deal Brexit triggers increased border checks and more delays, will you need to make changes to your service delivery standards? Will you still be able to offer 24-hour delivery for example? Will you need to change your pricing structure? Will you need to be registered for VAT in another country post Brexit?
- Do you employ staff from the EU? Will you still be able to employ your existing workforce? Will you be able to employ new staff from the EU?
- What about data protection and transfer of data?
There are lots of question to ask, and it’s probably a lot of effort. But once you’ve done this, you should be in a better position to start mitigating the potential fallout of a no deal Brexit.
Keep an eye on developments
Things may well start changing at a rapid pace now. You should find the most up-to-date information on the Government’s transition page.
Ready? Set? Action!
No doubt this will be a tumultuous period. It’s ok to panic – but only for a bit! Then it’s time to take some action. Here are our top 10 recommendations for actions you can take now:
1. Consider hiring a customs intermediary (or be prepared for a steep learning curve!)
A customs intermediary – whether that’s a freight-forwarder, customs agent or fast parcel operator – can do all the dirty work, such as the endless form-filling that’ll help you shift your goods. Consider engaging one now.
The alternative? Learn very quickly how to make customs declarations, apply for access to the online Customs Handing of Import and Export Freight (CHIEF) system and make sure you have the personnel resource in place to deal with the declarations on an ongoing basis. Here’s a little taster of the learning curve involved – a “simple” list of Customs Procedure Codes.
2. Check if you have an EORI number. If not? Register now!
You will need this if you move goods between the UK and the EU or if you need to make customs declarations. If your company doesn’t have an Economic Operator Registration and Identification (EORI) number, you can expect added border costs/delays. For example, if HMRC can’t clear your company’s goods at the border, you may need to pay storage fees. It only takes 10 minutes to get one,. You can request an EORI number here.
3. Understand how much more you are in for – and adjust your pricing if need be
The UK’s new Global Tariff will replace the EU’s Common External Tariff on 1 January 2021 at the end of the Transition Period. There are some 9,500 products that come under the government’s new global tariff and around 2,500 will be tariff-free post-Brexit. The “good news” is that nearly 6,000 tariff lines have been streamlined and simplified. Now is the time to check the UK trade tariffs applicable from 1 January 2021.
And then decide if you need to adjust your pricing structure.
4. Understand when full border controls will apply to your goods – the 2021 three stage border process
The Covid-19 pandemic has had a seismic impact on many British businesses. To help them, the government recently announced that full border controls on goods entering the UK won’t apply until 1 July 2021, meaning they can defer payments for six months. The border checks have been split into three phases:
- From January 2021:
Customs declarations will need to be submitted for controlled goods (those goods that need to a license to be imported such as alcohol and tobacco).
Traders importing all other goods can delay payments and submitting declarations payments for up to six months.
- From April 2021:
Any products of animal origin (including meat, pet food, honey, milk or egg products) and regulated plant products will need pre-notification and relevant health documentation.
- From July 2021:
Customs declarations will be needed at the point of importation for all goods traded between the UK and EU. Tariffs will also need to be paid on these goods too.
5. Check if you can use postponed VAT accounting for paying import VAT
From 1 January 2021, if your business is registered for VAT in the UK, you may be able to account for import VAT on your VAT Return for goods imported from anywhere in the world. This means that you could declare and recover import VAT on the same VAT Return, rather than having to pay it upfront and recover it later.
6. Consider moving to monthly VAT returns
If you are likely to be in a VAT refund position, consider moving to monthly returns from quarterly returns to ease your cashflow. You will get your money back more quickly. Talk to us if you think this might help you.
7. If you sell goods to B2C customers in the EU (you currently use the distance selling rules)
The distance selling scheme applies to B2C (not B2B) sales of goods to customers in the EU, and is designed to avoid the need for businesses to register in other EU countries by charging any VAT due in the UK instead.
In the absence of any agreement to the contrary, the right to use the scheme ends on 31 December 2020. If you are involved in such sales you should check whether you will need to register for VAT in any EU countries, taking into account the different registration thresholds in place in each country. You can find out more about registering for VAT in EU countries on the European Commission’s website.
8. If you supply digital services to EU consumers (you are currently VAT MOSS registered in the UK)
Decide on whether you need to register for the EU’s VAT MOSS Scheme in another state, or alternatively you must register for VAT in each EU member state where you sell digital services to consumers.
9. Check if you could request a duty deferment account (DDA)
It’s not easy, granted. But instead of paying customs duty, excise duty and import VAT on individual shipments, you could pay these duties by direct debit every month. You can find out more about setting up a Duty Deferment Account here and the Simplified Import VAT accounting here.
10. If you employ or plan to employ EU citizens
If your firm employs EU citizens among its staff, you should encourage them to apply for the EU Settlement Scheme. And should you want to continue recruiting from EU countries in 2021 then review your HR processes. In case of a no-deal, you’ll need to collect and retain information on EU citizens’ ‘right to work’, as you would for non-EU workers.
If you made it this far – well done! Do you need more help planning and understanding the impact of Brexit? Then do talk to us. We’re here to help.
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