There are less than six months to go until the UK leaves the EU single market and customs union on 31 December. Having already left the European Union in January (which effectively sealed Brexit), the country has been in a transition period ever since, with the UK continuing tariff-free trade with its continental neighbours.
However, that’s all set to change on 1 January. From that day onwards, the UK will no longer follow EU rules. The UK and EU are currently negotiating a deal. Depending on the outcome of these talks, the UK could be facing two different pathways.
The two scenarios – and their implications
Should the government secure a free-trade agreement (FTA), the UK and the EU’s relationship will be based upon tariff-free trade.
But, if the UK and EU fail to reach an agreement (there are many sticking points such as data sharing, security, aviation standards and access to fishing waters), then the UK will leave without a deal, otherwise known as ‘no-deal’. This would see the country assume ‘third country’ status and begin trading with the bloc under World Trade Organisation (WTO) terms, with all British exports subject to EU tariffs and border checks.
Whichever path the UK takes, be very clear. Changes are real and inevitable.
It’s something that many economists and business organisations claim could irrevocably harm British businesses – causing endless paperwork, traffic ‘bottlenecks’ at ports and inflated prices on goods.
The challenges of Covid-19 pandemic have diverted attention away from Brexit. In July, research by the Institute of Directors (IoD) found that three out of four businesses surveyed said they were unprepared for Brexit. Many in accountancy are also expressing concern that their clients won’t be ready: one senior finance figure told the AAT: “Coronavirus has diverted attention; many businesses believe that Brexit is something that’ll be happening next year or there’ll be an extension. It’s not. Brexit is inevitable.”
Clarity (or lack of it) is another challenge: the IoD research also found that half of those companies questioned claimed they can’t fully plan for the end of the transition period because the Government’s guidelines aren’t clear enough.
Therefore, in the months ahead, accountants and finance professionals will play an integral role, dispensing guidance and advice to their clients about how they can best navigate any post-Brexit hurdles. They’ll be inordinately busy too – according to HMRC, up to 250,000 SMEs will be making customs declarations for the first time if there’s no deal.
Will businesses still be able to hire EU nationals in the future? How will Brexit affect GDPR? And what should accountants be doing to make the processes for their clients easier? The answers to these questions and many more below…
Any business that imports or exports goods in and out of the European Economic Area (EEA) – which comprises the 27 EU nations plus Norway, Iceland and Liechtenstein – will need to make customs declarations from 1 January 2021. Here’s what they need to be aware of:
Making a customs declaration
· Businesses will need to submit a full declaration whenever the goods enter the UK or EU (unless they are putting them into temporary storage).
· Making a customs declaration is complicated. Accountants might want to suggest that their client uses an intermediary (such as customs agents, freight forwarders or fast parcel operators) to help them.
· If a business wants to make customs declarations themselves without an agent, they can do so online via the Customs Handling of Import and Export Freight (CHIEF) system.
· Businesses can also make a simplified frontier declaration when importing goods. More information here.
· A duty deferment account enables businesses to defer customs duties, excise duties and import VAT. Instead of paying these taxes and duties on individual consignments, they can be paid once a month through direct debit.
· A duty deferment account won’t be needed for VAT-registered businesses who intend to record import VAT on their VAT return.
· After 31 December 2020, an UK EORI number [HYPERLINK: https://www.gov.uk/eori] (Economic Operator Registration and Identification) will be needed for any business that moves goods between the UK and the EU. The number should be prefixed with ‘GB’.
· Businesses that don’t have an EORI number can expect increased costs and delays. For example, if HMRC can’t clear a company’s goods at the border, the business may need to pay storage fees.
· An EORI number won’t be needed if the business provides services only.
· HMRC has already auto-enrolled many VAT-registered companies that have traded with Europe before. However, firms that are below the VAT threshold and/or don’t have a ‘GB’ EORI number will need to apply here.
· The process of applying for an EORI number should take 10 minutes or less, and it will take up to a week to arrive.
· If a business makes customs declarations in the EU, it will need an EU EORI number. This is also needed for any EU company that wishes to receive goods from a UK supplier.
The 2021 three-stage imports process
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.
· A global tariff will be introduced on 1 January 2021, aimed at cutting costs for UK businesses and consumers.
· The tariffs on more than 6,000 products will be simplified and streamlined.
· Goods that will have zero tariffs include dishwashers, freezers, tampons, bay leaves, cocoa powder and Christmas trees.
· An EORI number won’t be needed for businesses moving goods between Northern Ireland and Ireland.
· The Government’s three-stage approach for border controls won’t apply for Ireland either.
· The Northern Ireland Command Protocol will cover continued access for Northern Irish businesses to the UK market.
From 1 January 2021, British businesses will need to apply VAT when trading with EU countries in the same way that they currently do when trading with non-EU countries. The major changes include:
· On 1 January 2021 the UK will introduce postponed accounting (also known as deferred import VAT). This means that businesses won’t need to pay import VAT when their goods arrive at the British port or airport. Instead, they’ll need to account for it on their VAT return. This will apply both to imports from the EU and non-EU countries.
· This could be advantageous for some firms (especially those with cashflow issues) but could cause extra paperwork six months down the line for others.
· Distance selling means selling goods/services through digital TV, mail order or by phone or text message.
· From 1 January 2020 UK businesses will be able to ‘zero-rate’ any sales of goods to EU consumers/businesses. However, these goods will be subject to VAT and customs duties in individual member states.
· If a business ‘distance sells’ to the EU, they should register for VAT in the country that they are selling to. This is even more important if the total value of goods exceeds the distance selling threshold for that country (€35,000 for most EU countries).
VAT on digital services
· British companies that sell digital services to EU consumers will no longer be able to use the UK’s VAT Mini One Stop Shop (VAT MOSS) to declare sales and pay VAT due in EU member states. All final returns for MOSS should be submitted by 20 January 2021.
· Businesses can still use MOSS after 1 January 2021, but will need to register in an EU member state. More information available on the European Commission website HYPERLINK:
· Alternatively, businesses can opt to pay VAT in each member state where they sell digital services to consumers. Again, see the European Commission website for details on how to register.
· For e-commerce services, VAT collection will shift from the border to the vendor’s website. Sellers will charge and collect output VAT from the UK website, usually at the online checkout. These e-commerce firms will also need to declare this VAT.
· The Low Value Consignment Relief (LCVR) – the VAT waiver that relieves import VAT on commercial imports of goods valued at £15 or less – will be scrapped.
· From 1 January 2021, UK businesses will lose access to the EU VAT refunds system, so any claims should be made before then.
· After this, any British company that wishes to claim a refund will need to refer to the local EU member state where they will claim the refund (each EU state has its own process for refunding VAT to non-EU businesses).
Ireland and VAT
· For goods imported into Great Britain (England, Scotland and Wales) from Northern Ireland: UK import VAT will need to be paid.
· For goods imported into Northern Ireland from Great Britain: EU VAT will need to be paid (however, this can be deferred via postponed accounting).
· No VAT will be due on exports from Northern Ireland to Great Britain, or from exports from Great Britain into Northern Ireland.
· Exports from the European Union to Northern Ireland will follow current EU procedures.
· Those businesses transferring goods between three parties in the EU will no longer be able to take advantage of the triangulation process. Instead, they’ll need to register in any countries that they engage with.
· Some sectors may be exempt from paying VAT, such as tour operators or fintech firms. For the latest advice, check gov.uk .
· Do you need to register to pay VAT in any individual EU member states?
· If you need to make a claim for EU VAT refund,
· Review your contracts, websites and/or terms and conditions to allow for any changes triggered by the transition period.
· Do you have an e-commerce website, do you need to tweak their IT systems to accommodate the new changes to VAT payments?
Earlier this year, the government and the UK’s Financial Reporting Council (FRC) announced that there would be no major changes to accounting and corporate reporting during the transition period.
However, there will be some changes after the transition period ends. This will have repercussions for a small number of businesses (see below).
· For financial years beginning after 31 December 2020, UK incorporated and UK-listed companies and groups that currently use EU-adopted International Accounting Standards (IAS) will be required to prepare accounts using UK-adopted IAS. There won’t be any changes for UK incorporated companies currently using UK GAAP to prepare their accounts.
· For financial years beginning during the transition period, British companies with a UK listing can continue to use EU-adopted IAS.
· UK incorporated groups that issue debt from a subsidiary incorporated in the EU will need to both comply with the rules of the country where the subsidiary is based and produce accounts that comply with the UK Companies Act 2006.
· EU/EEA organisations with a presence in the UK will need to file individual annual accounts with Companies House [HYPERLINK: https://www.gov.uk/file-your-company-annual-accounts] for accounting periods from January 2021.
People and travel
· Any business that is reliant upon EU nationals should encourage these staff to apply for the EU Settlement Scheme so they can continue to live and work in the UK. They must apply before 30 June 2021 (or 31 December 2020 in the case of a no-deal Brexit).
· British businesses will still be able to hire staff from EEA countries after the transition period ends. However, the UK government will introduce a controversial new points-based immigration system from 2021. People who want to live and work in the UK after 1 January 2021 will need to gain 70 points to be eligible to apply for a visa. The first 50 points will be awarded for meeting requirements such as: an ability to speak English to an acceptable level; having a job offer from an approved employer; the role being at an A-level equivalent skill level (minimum salary of £20,480). Applicants can earn the remaining 20 points by: earning more than a “general salary threshold” of £25,600; having a job offer in a “shortage occupation”; being a ‘new entrant’ to the labour market; holding a relevant PhD.
· Health-workers can apply for a fast-track visa, while the system also encourages scientists and engineers.
· International students will be able to stay in the UK for at least two years after graduating.
· From 1 January 2021, British passports must have at least six months left in order to be valid for travel to EU countries.
· Tourists won’t need a visa for stays of less than 90 days to EU/EEA countries. However, they may need a visa or permit if they wish to stay longer, work or study, or for business travel. For more information, consult the travel advice for each individual country.
· The European Health Insurance Card (EHIC) will only be valid until 31 December 2020. Access to state health care may not be possible from January onwards, so visitors with a pre-existing medical condition are advised to get comprehensive travel insurance.
· From 1 January 2021, there’s no guarantee that free mobile phone roaming will continue in the EEA. Check with mobile phone operators for more information.
· People travelling to the EU in their own vehicle might need a ‘green card’ or valid proof of insurance, plus a GB sticker.
· Travel to Ireland will not change from 1 January 2021. British citizens will also be able to work in Ireland in the same way as before.
· During the transition period, personal data (data that can identify a living person, including names, addresses, IP accounts and payroll details) will still be able to flow between the EU/EEA and the UK without any restrictions.
· The EU is currently undertaking an ‘adequacy assessment’ of the UK to establish whether the country has a sufficient level of data protection. If the UK is found to be ‘adequate’, then personal data should flow as freely as it did before.
· If the EU hasn’t made an adequacy decision before the end of the transition period, EU laws could apply. Check out the Information Commissioner’s Office (ICO) for more information.