With effect from 1 February 2020, the UK will no longer be a member of the EU and will enter an implementation (transitional) period until 31 December 2020. During the implementation period, there will be no changes to the terms for trading with the EU or the rest of the world, unless the rules change for the whole of the EU. This means EU rules for Customs, VAT and excise will continue to apply to the movement of goods and trade during this transitional period.
With effect from 1 January 2021, the rules for trading with other countries will change and you should now be considering the impact this could have on your business, for example, you will need to complete Customs declarations for imports and exports of goods between the UK and the EU.
We have set out below a number of practical and commercial points which should be considered. HMRC will continue to issue updates as the final Brexit situation is confirmed. We will also provide regular updates on our website.
- Transitional period trading with the EU
Businesses involved in cross border trade should continue to complete VAT returns and other EU statistical forms (ECSL and Intrastat) as they do now. There will be no new Customs procedures during this time so again any trade with other countries will continue to be dealt with under the current rules.
Registration for and use of Transitional Simplified Procedures (TSP) for imports from the EU is currently suspended. You will not need to use TSP between February and December 2020. If you have already applied for this service, you should keep your paperwork safe. In addition, postponed VAT Accounting is currently not available during the implementation period.
- Obtain an Economic Operator Registration and Identification (EORI) number
Currently, all businesses that import or export physical goods to / from non-EU countries are required to have an EORI number in order to declare and clear goods through customs. As the EU is a free trade area, an EORI number is not currently required for UK businesses that trade exclusively with other EU businesses. However, post Brexit, UK businesses will require an EORI number to continue trading with EU countries.
If you currently import goods from or export goods to non-EU locations, you will already have an EORI number. After Brexit, you will also need to use this number in order to trade goods with EU countries.
HMRC have written to all VAT registered businesses that deal in EU trade (those who have completed Boxes 8 and 9 on the VAT returns) and provided those with an EORI number, starting with “GB”). If you haven’t received an EORI number, you can register for it as a business or an individual. If your company is part of a larger holding group, then the application for an EORI number must be processed by the parent company, not the subsidiary.
The application process itself is straightforward and should only take 5 to 10 minutes to complete. Usually, an EORI number can be obtained within a week, however a surge of applications may lead to delays. Without an EORI number there is the risk that goods will not clear the border, resulting in increased costs and delays. Apply for an EORI number here.
Once you are in receipt of your EORI number, you should give it to your freight forwarder to use for customs declarations.
An EORI number is not needed if your business does not trade actual physical goods within the EU, i.e. if it only buys or sells services to / from EU businesses.
- Consider the potential of having an EU presence
Considering how much of your business comes from the EU and where your customers come from is likely to give you a steer towards whether you would benefit from setting up a subsidiary company in the EU.
Subsidiary status in the EU enables you to act as an importer and distributor for your EU supplies and customers. If you have a significant customer base in the EU, it is likely a subsidiary would be perceived as a strong commitment to your market. On the back of this, there is potential merit in marketing and communication activity to be locally managed. A subsidiary could also provide an established business which has the scope to expand further.
The case for subsidiary status in the EU will involve many factors that need to be thoroughly considered, including, the business model, industry, tax considerations and the potential impact of import and export tariffs. Alternatively, you may benefit from considering the acquisition of a local business to meet your business objectives.
- Apply for Authorised Economic Operator (AEO) status
If your business is involved in the international supply chain, obtaining Authorised Economic Operator (AEO) status will demonstrate that your role in the international supply chain is secure and that your customs controls and procedures meet EU standards. Whilst having AEO status is not compulsory, it does simplify customs procedures and, in some cases, could result in your goods being fast-tracked.
To apply for AEO status, your business will need to be a legal entity, established in an EU member state, be actively involved in customs operations and international trade, and have an EORI number (see point 2). As long as it fulfils these criteria, your business can be of any size.
For example, those who might benefit from applying for AEO status, include:
- Freight forwarders
- Customs agents
There are two types of AEO authorisation and each has its own benefits. You can apply for AEO status customs simplification (AEOC), AEO status security and safety (AEOS), or both.
Consider the benefits that each would bring to your business model:
- Provides a faster application process for customs simplifications and authorisations
- Enables reductions or waivers of comprehensive guarantees
You will need to be a holder of an AEOC if, for instance, you want to move goods in temporary storage between different member states without attracting multiple customs tariffs.
- Offers a lower risk score, which is likely to result in less physical and documentary checks
- Enables consignments to be fast-tracked through customs control
- Reduces your requirements for mandatory pre-arrival and pre-departure declarations
- Provides a reciprocal arrangement and mutual recognition with countries outside the EU, including the USA, Japan and China, as well as those who adopt the World Customs Organisation safe framework
It is worth pointing out that the application process does take time; from starting your application you have 28 days to complete it, providing information about your business and its activities. HMRC will then review your application and send you a notice of its acceptance. Furthermore, they will arrange a visit to your business to review documentation and procedures. At this point, if your business meets the AEO criteria, you will receive authorisation within 120 days.
There is no charge to apply for either or both types of AEO status or for the issue of authorisations. For further guidance on the application process and to apply for AEO status online, please click here.
As application for AEO status is a somewhat lengthy and complex process, you may instead wish to consider the merits of using Simplified Transitional Procedures (TSP). See comments at point 1 above.
- Check local VAT registration requirements
At this point in time it would make sense to check what VAT rules will apply post Brexit in the EU countries you currently trade with, as many will apply different VAT registration rules for EU and non EU countries. Your business could be affected if you are exporting goods to the EU, if you sell online or mail order goods to private customers in other EU countries (distance selling) and / or if you are interacting with EU VAT IT systems, for example, the VAT mini One Stop Shop (MOSS).
On leaving the EU, your UK business could be required to register for VAT in each EU country where it sells goods. Likewise, your EU suppliers to the UK could face a UK VAT registration requirement and both parties could see an increase in compliance costs.
It may be that you are already VAT registered within the EU. If so, you will still need to check what implications Brexit may have regarding compliance requirements. If these do change, you will need to reregister.
Currently, the process of triangulation enables ease of trade and accounting for VAT between intra-EU supplies of goods involving three parties – the supplier, intermediate supplier and final customer. This may not remain the case after Brexit, so again, it is worth considering potential effects on your business model.
- Consider how emergency relief procedures might help your business
In light of the amount of change businesses that import and export face, there are a number of customs procedures which may enable your business to gain relief from both the administrative burden and from the payment of duty to HMRC.
In addition, there are a number of provisions, which may ease the path ahead and it is worth understanding the potential of these now. As always, seeking professional advice from a business advisor who knows and understands your business model is always advisable but you may wish to do some initial research into, for example:
- The authority to operate or use a customs warehouse enabling you to store goods with duty or import VAT suspended
- Temporary Admission (TA) providing full relief for set goods or goods meeting certain criteria
- Application for Inward Processing Relief on customs duties
- Application for Outward Processing Relief
- Authorised Use providing full or partial relief from import duty for certain goods for specified uses
This is by no means a conclusive list and once again, we would stress the value of seeking professional advice to meet the specific requirements of your business and the challenges it may face.
- Plan your workforce
It is already apparent that businesses are re-examining how they will continue to ensure that they have the necessary skills and labour to sustain their operations post Brexit. It is worth considering your business model now and how you will adequately resource it.
There is a lack of clarity around how freedom of movement within the EU might work post-Brexit.
If you are concerned about the impact of potential changes in freedom of movement on your business, further advice should be sought from your employment advisers.
- Review forecast assumptions and impact of exchange rates
As every business person will be well aware, forecasts have an important role to play in the crucial decisions that are made in business, including, setting budgets, sales targets, investing in equipment or people, tax planning and more.
Forecasting what the future might bring after Brexit could be vital to the future success of your business. Best-case scenarios are worth considering against worst-case scenarios. This will give you a picture of how well poised your business is to cope with the challenges that lie ahead and may also present you with a view from which you can gain an advantage over your competitors. Look at your projections and view whether they are, for example, realistic or affordable. Do they tell you that you need to change the way you do business? Do they suggest that your longer term plans need to be revised?
Consider the impact of Brexit on your imports and exports, how it affects your business model and consider how the potential increases in tariffs, costs, compliance obligations and restrictions might impact on your business going forward.
If your business is able to adapt to the new landscape beyond Brexit, the chances are that you will have to make some changes to your plans and it may also be prudent to adopt contingency planning. Agility is going to be fundamental to your success.
- Clean up your data
Whilst quality of data has always been important, it will be even more significant to the success of your business going forward. With the introduction of new tariffs and businesses having to adopt new import and export processes, cleansing your data now and considering how to use and share your data to best effect in future could provide your business with a competitive advantage post Brexit.
A good starting point would be to review your businesses’ Intrastat data. Your Intrastat records will include the current eight-digit commodity codes which are used to classify your goods and to determine applicable tariffs, reliefs and quotas. Post-Brexit, classification will also determine whether additional certification or licensing is required, and it is also worth noting that the commodity codes will be expanded to ten digits. Commodity codes can be used to check the temporary tariffs on imports proposed by the UK government after Brexit here.
As we have already covered in point 5, your VAT registration requirements may change and with that there are a range of issues to consider which will have an impact on your data. From the essential approvals you require to import and export, through to measures to reduce administration and indirect costs, and approvals to optimise supply chain and indirect tax efficiencies, it is worth seeking professional advice now to understand all potential data requirements. You will then be best placed to deal with new processes and maximise the potential success of your business post-Brexit.
Finally, it is also worth considering whether your business transfers personal data between the EU and the UK, for example, customer or employee personal data. If so, you may need to put additional measures in place to make them lawful. More information can be found here.
- Review customer readiness, supply chain readiness and your contractual arrangements
Take a good look at your supply chain and consider the contracts you have in place with your cross-border suppliers and freight providers. Do you need to consider holding more stock? Are your freight providers prepared with the permits and registrations they will need to fulfil your requirements? Do you need to renegotiate contracts? Is it time to establish relationships with new suppliers? This is a good time to be reviewing your business model, to evaluate where you source your products from and to establish routes to markets, avoiding potential obstacles in the process.
As at any time in business, relationships are key so it is worth investing time in making sure you are communicating as effectively as possible with your customers, suppliers and other third party contacts, such as banks or lenders.