*Coronavirus update (March 17th 2020): The UK government has clarified that the transition period will still end on 31 December 2020, as this is enshrined in UK law. The UK and European Commission continue to discuss alternative ways that will allow negotiations to continue, in light of guidance and developments regarding coronavirus.*
The UK left the EU on January 31st 2020 and has now entered the Transition period until December 31st 2020. During the transition period there will be little or no change to current trading arrangements with the EU i.e. the UK will remain part of the customs union and goods will move freely to and from the EU with zero tariffs. From March 1st 2020, the UK will commence negotiations with the EU to agree a new trade deal covering tariffs, customs procedures, data protection and many other areas. Once concluded, the new deal will determine how the UK will trade with the EU after the transition period. Until the deal is concluded, we will not know the details of future trading arrangements with the EU.
So, what does this mean in practice for international trade?
There are a number of important things that all companies that currently trade with the EU should put in place, to ensure they are properly prepared for trade with the EU after the transition period. To help with this planning and preparation, we have put together this brief practical guide covering the essential aspects of future trade for both Exporters and Importers.
Exporters will need to have an EORI (Economic Operator Registration & Identification) number so that you can continue to export to the EU. If you are a VAT registered business, you should have been issued with an EORI number. If you are a non-VAT registered business you should apply for an EORI number which you can do here.
You should also check that your Importer has an EU EORI number which will be required to enable them to import the goods.
Exporters should make sure they have identified the correct customs tariff codes for the goods, to ensure they are correctly declared for export. The tariff code will also determine the rate of import duty and tax the Importer will need to pay.
After the Transition period, exports will have to be declared through a formal customs process when departing from the UK. Exporters can submit export declarations themselves, however we would recommend enlisting the services of a good Forwarding Agent (preferably with AEO status) who can deal with the customs process for you, as well as arranging the physical movement of your goods. Although you may use an agent, as the exporter, you will be responsible for ensuring the goods are correctly declared for export, so you will need to provide full and correct details to the agent.
You may be able to use the Common Transit Convention (CTC) to simplify how your goods pass through customs and when your importer pays customs duties. You can find out about CTC here.
At the time of writing, the government is offering the opportunity to apply for grants towards recruitment, training and IT improvements for businesses that complete customs declarations. The deadline for applying for these grants has been extended to January 31st 2021. Read more about customs declaration grants here.
After the Transition period, Exporters will need to generate Commercial Invoices and possibly other documents such as Packing Lists and Certificates of Origin before attempting to export goods. These documents must contain all the appropriate details to enable the smooth export and import of goods. We recommend you understand how to prepare these documents and what information they need to contain.
During the Transition period, EC Certificates of Origin, EUR1 and ATR Movement certificates will continue to be issued where appropriate. After the Transition period, the EC Certificate of Origin will be replaced by a UK Certificate of Origin but the issuance of EUR1 and ATR Movement certificates will depend upon the outcome of the trade agreement negotiations.
Current export licensing arrangements will continue to apply until the end of the transition period. After this, arrangements will change, so Exporters will need to be aware of changes to ensure the correct export licences are used. The Department for International Trade (DIT) has issued guidance on exporting and trading items subject to strategic controls during the transition period which can be found here.
Exporters should use the correct and appropriate trade terms (Incoterms®) to correctly define both the Exporter’s and Importer’s obligations for each transaction. This will avoid inadvertently being responsible for unforeseen costs and responsibilities. We strongly recommend you become familiar with, and use, Incoterms 2020 which came into effect on January 1st 2020.
Product Specific Requirements
As the Exporter, you will need to check what you need to do, specifically for the type of goods you intend to export. You might need to consider obtaining licences, certificates, marking and labelling requirements etc.
Exporters need to ensure they hold and retain appropriate proof of export for VAT compliance and also understand the implications of any changes in how VAT is applied. We would recommend seeking specialist advice regarding VAT.
Importers will need to have an EORI number as mentioned under the export section above.
After the Transition period, imports will also have to be declared through a formal customs process when entering the UK, in the same way as exports.
The government has announced plans to introduce import controls at UK borders on goods imported from the EU, after the transition period ends on 31 December 2020. Therefore, before this date, traders need to ensure they have an EORI number (see above) and plan for making customs declarations.
We also recommend Importers familiarise themselves with the different import customs processes in order to take advantage of available duty relief schemes. UK businesses who already have authorisation to use special/simplified customs procedures or other facilitations should also take time to find out here what changes may affect any existing arrangements after January 1st 2021.
You may also be able to use the Common Transit Convention (CTC) as mentioned in the export section above.
Importers should ensure sure they have identified the correct customs tariff codes for their goods. This is vitally important as the tariff code will determine the amount of import duty and VAT that will need to be paid when goods are imported into the UK.
Import Customs Duty
UK Importers may need to pay different rates of customs duty (tariffs) on imports from the EU after the Transition period, if no trade agreement is reached with the EU.
If there is no trade agreement between the UK and another country after the Transition period, you will have to trade with that country under World Trade Organization (WTO) rules using Most Favoured Nation (MFN) treatment. MFN means that the UK cannot offer better trading terms to one country compared to another, unless it has a trade agreement with that country.
On May 19th 2020, the UK Government introduced the UK Global Tariff (UKGT) which will replace the EU’s Common External Tariff from January 1st 2021 onwards. This new tariff is designed to streamline and in some cases reduce the amount of duty payable on products imported into the UK. These tariffs will be applicable to all imported goods except if an exception applies e.g. tariff suspension, if the goods are from a country covered under the Generalised Scheme of Preferences or if they come form a country which has a trade agreement with the UK.
Duty Deferment Account
To avoid having to make individual payments for duty and VAT on each import, we would recommend Importers arrange a duty deferment account. This way, you can delay paying most customs charges and make one payment monthly. VAT paid on the import of goods can be reclaimed (if you are a VAT registered business) but has cash flow implications due to the timing difference between paying VAT and reclaiming. Where import duty is payable, this for the most part cannot be reclaimed so has a cost implication. So, make sure this is correctly factored into your pricing.
This brief article is intended to highlight the key aspects of EU trade that will change once the UK leaves the EU, so that UK traders can plan and prepare accordingly. There will undoubtedly be changes and many updates throughout the Transition period, particularly when the UK commences negotiations with the EU on the new trade deal, so we strongly recommend traders keep up to date. You can register for e-mail updates directly from GOV.UK here. We will also be publishing relevant updates via our web site and social media but if you would like to receive these directly please contact us here.
The UK is also in the process of negotiating its own trade deals with its trading partners, now that such deals will be independent of those the UK was covered by, when it was still a member of the EU. Trade agreements have already been agreed with many countries, effective as of January 1st 2021. Others are still under discussion and if a deal is not reached by December 31st 2020, WTO rules will come into effect.
Here at Access to Export, we have been helping more companies to export and companies to export more, for over 20 years. During this time, we have developed a wealth of knowledge and experience, which means we can provide help and support to guide you through the Transition period and beyond. We can also provide on-going support, so please get in touch with us for an initial free exploratory discussion. We are always pleased to talk to international traders both new or established. We often find there are areas of international trade within businesses that we can help improve, so please do contact us either by phone, email or via our web site.
Good luck to all businesses throughout the UK after BREXIT!