The Voice of SME's in Engineering

BREXIT FAQS

Whether or not the UK succeeds in securing a Free Trade Agreement with the EU by 1 January, there will inevitably be a dramatic increase in customs declarations, possibly duty and VAT costs and additional costs for British exporters and importers. The same will apply to EU27 based companies importing into the UK. Many of these additional costs will have to be passed on to the end-user.

Export Partners UK’s industry members are in close contact with HMG on all aspects with regard to Brexit and leaving the EU Single Market and Customs Union. Whilst there is a lot of information available for UK companies at www.gov.uk/transition, it is primarily intended from the point of view of the UK government. Documents from the EU perspective can be found at https://ec.europa.eu/commission/brexit-negotiations_en

However, British and EU businesses may want to look at the wider implications and opportunities and are advised to contact their industry bodies who will be able to talk them through the issues from the point of view of business. For some, it may not be a simple matter of “making the changes and getting going”.  For example, if their prices increase by 10%, 20%, or more, or of they have to spend a lot more on customs brokers or new testing and standards regimes their goods may not be competitive any longer.

These FAQs are intended to help companies begin to understand just how much change they will face on 1 January. Change is inevitable. If there is an FTA between the UK and the EU, this will limit some of the changes, possibly around duty, standards and tax. However, even if there IS a deal, customs declarations and additional costs and bureaucracy will be inevitable at the UK/EU border.

General

Q: Will there definitely be a UK-EU Free Trade Agreement?

A: At the moment, no one knows whether there will be a UK-EU FTA at the end of the year or sometime next year…. Only time will tell.

Q: Some politicians suggest that the UK may be better off with an “Australian-style deal” or follow the “Australian model” with the EU. What does this mean?

A: The term “Australia-type deal” or “Australian model” with regard to the EU is deliberately misleading. The EU does not have a Free Trade Agreement or deal with Australia. Neither does Somalia! The term is used by some politicians to put a positive spin on a no-deal situation where the UK is either unable or unwilling to enter into a FTA agreement with the EU. If the UK is not able to secure an ambitious FTA with the EU, the correct term to use for this arrangement would be a  “no-deal” situation, whereby the UK would revert to WTO terms only in its trading relations with the EU.

Exports to the EU

Q: I export to the EU, what do I need to do?

A: From 1 January 2021, unless there is a Free Trade Deal between the UK and the EU, all goods shipped from the UK to the EU will be liable to duty and VAT on arrival in the EU. You will need a UK EORI number to clear UK customs and you will need an EU27 EORI (effectively an importer of record) to clear the goods and pay duty and VAT when the goods arrive in the EU. Your goods must be labelled appropriately for the country they are sold to in the local language and to include the name and address of the brandowner/manufacturer and the details of your official EU27 importer.

Q: How do I get an EU27 EORI?

A: Usually the EU EORI will be granted once you have successfully completed your first shipment into the EU. The application will be made at the port and in the country where you will be importing the goods. We believe that Belgium, Ireland and Germany will agree to process an EU27 EORI for British companies before 1 January 2021.

Q: I do not have an EU EORI, can I still export to the EU?

A: Yes, but you will have to use a custom s clearance company or parcel company to handle this for you (DHL, Fedex, UPS etc are all ready to do this). You will need to set up a “deferment account” with them. This means that they will pay the duty and VAT on your behalf and invoice it back to you at a later date.

Q: Where can I check the tariff for my goods when importing or exporting?

A: The UK’s general external tariff will apply to imports from all countries where the UK does not have a preferential Free Trade Agreement. Details are at https://www.gov.uk/government/news/uk-global-tariff-backs-uk-businesses-and-consumers . The EU equivalent is at https://madb.europa.eu

Q: I am taking physical samples (or “examples” i.e. they are undamaged and potentially saleable) to a tradeshow or meeting in the EU. Do I still have to pay duty and VAT?

A: No, but only if you have an ATA Carnet. An ATA Carnet will enable you to take the goods into and out of the EU27 but there are rules and regulations and you have to pay for the Carnet. If you do not have an ATA Carnet, duty and VAT would be due at the border in both directions!

Q: What are the new duty rates on goods into the EU from the UK?

A: Unless there is a UK-EU27 FTA in place by 1 January 2021, the EU’s existing Common External Tariff would apply to UK goods on arrival.

Q: If I am selling from my website B2C in the EU, do my goods still attract duty?

A: Yes, although there is a minimum threshold on goods entering the EU when they have been sold from your website or through a third party marketplace will still be eligible to pay EU duty and EU VAT but for UK VAT purposes they would be UK VAT zero-rated for export. It will be the brand owner’s or the seller’s responsibility to ensure that the customer knows whether the goods will be shipped to them on a “Landed” (or Incoterms ® Delivered Duty Paid) basis or whether they will be expected to pay the duty at the prevailing rate and VAT on arrival. Most consumers are likely to prefer and expect the Landed option. Goods must also be labelled appropriately for the country they are sold to in the local language and to include the name and address of the brandowner/manufacturer and the details of your official EU27 importer.

Q: I am not currently VAT registered in the UK but I do sell to the EU. Should I register for UK VAT?

A: Possibly. Whilst there is no obligation to register for VAT if your turnover is below the threshold (currently £83,000 p/a) if you are shipping goods to the EU yourself, you will be required to pay EU VAT (based on the EU country rate where the goods are imported) which you will not be able to reclaim. However, you may not need to register for VAT if you are intending use third party broker or parcel delivery company. Check with them.

Q: I am selling to Northern Ireland from Great Britain (England, Scotland or Wales) what do I need to know?

A: Goods from Great Britain to Northern Ireland will be subject to the Northern Ireland Protocol as they are entering the EU Customs Union with the sole purpose of the goods remaining in NI. Goods sent to Northern Ireland under the terms of the protocol cannot be onward shipped to the Republic of Ireland (which remains in the EU).

Q: Do UK import duty and VAT apply from 1 January 2021? Previously, there was mention of it not applying for the first 12 months.

A: Yes, duty and VAT will be due from 1st January but these can be deferred if you set up the right deferment accounts, for up to 6 months. At that point the money is die to be paid.  This deferment ends in July when all monies will be due when the rules are applied much more strictly. Thereafter HMRC will collect duty and VAT at the time of import.

Q: What are the new rules around sending back goods for repair? i.e. handles back to Italy?

A: This depends on whether the issue is addressed through a UK/EU FTA. If it is not, there is a chance that duty and VAT might be charged in one or both directions! It is best to ask your repair company nearer the time if they have a mechanism (for example goods under £135 through the mail or a way of tracking the return of the repair) to handle this.

Q: When I am invoicing an EU company, do I need to include the company’s EU VAT number on the invoice to enable me to zero-rate the invoice for UK VAT purposes?

A:  Whilst it might be good practice, it is not a requirement – however, you would be required to prove that the goods left the UK. You are likely to need Bill of Exit or other document to prove that the goods irrevocably left the UK.

Q: In which circumstances can we zero-rate goods for export?

A: HMRC notice 703 explains how this works from the UK perspective https://www.gov.uk/guidance/vat-on-goods-exported-from-the-uk-notice-703  Rem ember that the EU customer will still potentially be liable to pay EU VAT at their local rate when the goods arrive. You will need to have established which Incoterms® you are using which will confirm who is responsible for shipping, insurance, clearance, EU VAT and duty) on arrival.

Q: We currently ship as Approved Exporters on a preferential basis under the existing EU FTAs using the REX system to raise Certificates of Origin.  Our products are made using European components. Will the same Rules of Origin apply?

A: Each one of the UK’s new FTAs will have its own rules. Unless otherwise stated, preferential duty rates will only apply to goods manufactured one of the two signatory countries. However, customs declarations will still be needed.

Imports from the EU

Q: I am importing products into the UK from the EU, what do I need to do?

A: From 1 January 2021, unless there is a Free Trade Deal between the UK and the EU, all goods shipped from to UK from the EU will be liable to duty and VAT on arrival in the UK. You will need an EU27 EORI (effectively an exporter of record) to clear the goods out of the EU and a UK EORI (or an EU EORI recognised by the UK) to import the goods into the UK and pay duty and VAT when the goods arrive. Your goods will also have to meet all UK labelling and standards.

Q: What are the new duty rates on goods from the EU and elsewhere into the UK?

A: Unless there is a UK-EU27 FTA in place by 1 January 2021, the new UK Global Tariff (UKGT) would apply.

Continuity Free Trade Agreements (Japan, South Korea, Canada)

Q: How do I generate Certificates of Origin (COO) to enable my goods to pass duty free into the UK’s continuity FTA markets?

A: The UK government is expected to advise companies shortly what alternative mechanism will be needed to generate these COOs when the UK loses access to the REX system at the end of the year.

Q: I export UK manufactured goods on a duty free basis to Japan, Canada and South Korea under the EU FTA arrangements. Can I still do this in 2021?

A: Yes, the UK fully expects to have FTA agreements in place with Japan (signed), South Korea and Canada in time for 1 January 2021. Under these FTAs, UK manufactured goods can be exported to those countries (individually) as long as they are accompanied by a suitable Certificate of Origin proving they are of UK origin. The same also will apply when exporters of those countries import their goods into the UK.

Q: I export EU manufactured goods on a duty free basis to Japan, Canada and South Korea under the EU FTA arrangements. Can I still do this as a UK company in 2021?

A: Only if you have an EU subsidiary. The UK’s new  FTA agreements with Japan (signed), South Korea and Canada will confer duty free access for goods only if they have UK origin/are made in the UK. However, some UK companies may wish to consider whether they could establish a subsidiary company in the EU27 to continue to export EU manufactured goods directly from the EU on a duty free basis under the existing EU FTAs.  Companies considering this are strongly advised to consult a qualified international tax lawyer before doing this.

New UK Free Trade Agreements

Q: Which other countries does the UK have FTA agreements with?

A: Some have been signed off already (Japan, South Korea) while others are still under negotiation (Canada, USA, Australia, New Zealand, CPTPP – or the Trans Pacific Partnership. Remember each deal, if successfully negotiated, will be different and your customs documentation will need to reflect this. Different standards and labelling requirements will apply, for example. Some sectors may not be included in some of the deals. In most cases FTAs only cover goods made in the respective countries but in some cases there can be what is known as “triangular accumulation” where inputs from other FTA partners may sometimes be accepted. There may be differences on IP and the legal framework. The mechanisms for exporters will almost certainly vary from one FTA to another. Some may not come off altogether.

Agents/Contracts in the UK

Q: I have an agency contract, legal contract or other agreement  in the UK, is it still valid after Brexit?

A: Yes, but you will need to check how Brexit affects the contract. You are strongly advised to have the existing contract and arrangements checked by a qualified lawyer.

Agents/Contracts in the EU

Q: I have an agency contract, legal contract or other agreement  in the EU, is it still valid after Brexit?

A: Yes, but you will need to check how Brexit affects the contract. You are strongly advised to have the existing contract and arrangements checked by a qualified lawyer who understands the legal system in the EU27 country or territory concerned.

Labelling in the UK

Q: Do I have to use the new UKCA mark on my garments instead of the CE mark?

A: Yes, if your goods required the CE mark in the EU before 31 December 2020, then from 1 January 2022 (a year hence) the new UKCA certification must be labelled with the device when sold in the UK.

Labelling in the EU

Q: Will I be able to use the CE marking on my goods in 2021?

A: Theoretically yes, but you will need to have your CE certification re-certified by a company based in or accredited by the EU27. Check with your current certifying agency whether their current certification will remain valid or whether you need to reapply. All supporting paperwork has to be kept for at least 4 years.

IP Protection in the UK

Q: Are there any changes to IP protection in the UK?

A: Your pre-existing UK and EU trademarks should be intact but it is worth double checking this with your lawyer. Unregistered Community Designs will no longer be recognised by the UK but they can be covered by new UK Unregistered Designs. An IP lawyer can check these for you and most of the existing EU protections are being incorporated into UK law.

IP Protection in the EU

Q: I registered my UK trademark under the EU trademark scheme. Is it still valid and am I also covered in the UK?

A: Yes, your pre-existing UK and EU trademarks should be intact but you will need to check this for the UK and the EU27 and keep copies of the paperwork for both on file. A trademark attorney or lawyer will be able to do this for you.

Q: I am making a new Trademark application for the UK and the EU, how do I do this?

A: Any new trademarks must be registered separately for the UK and the EU27

Q: Are there any changes to IP protection?

A: Yes, Unregistered Community Designs will no longer be recognised by the UK but they can be covered by new UK Unregistered Designs. An IP lawyer can check these for you

Other questions

Q: Do sole traders have different rules from businesses for import/export?

A: No, but if they are not VAT registered they will be expected to pay VAT even though they will have no mechanism to claim it back unless they instruct a third party to do this for them. If you are importing or exporting you are encouraged to consider whether it would be beneficial to register for UK VAT even if you have not yet reached the threshold (£83,000).

Q: We receive commercial samples (or “examples” from our suppliers which cannot be destroyed. How will that be affected?

A: Either you or your supplier will have to pay the duty and VAT on arrival or consider using an ATA Carnet.

Q: If I ship direct to the EU from the EU but bill the customer in the EU from an entity in Northern Ireland what are the VAT implications?

A: Because of the complex Northern Ireland Protocol, this is likely to be complicated and there may be corporation tax issues in some countries. For more details on the Northern Ireland Protocol and what it means visit https://www.gov.uk/government/publications/new-protocol-on-irelandnorthern-ireland-and-political-declaration

Q: We have been told by our couriers that nett and gross weight will need to reported on the commercial invoice. Is this correct?

A: Yes

Q: When exporting other companies’ branded products to the EU from the UK, e.g. perfumes and cosmetics, is the local address of the importer required on the packaging even if the brand has their EU address on the packaging and is listed as the registered importer in Europe?

A: The officially recognised Registered Importer needs to be shown with their address and details, usually a web address. The goods will also need to satisfy the regulations and requirements of the individual EU country they are sold in.