Brexit- VAT and customs reflections six months later


As we move into the summer months, many organizations that sell merchandise can take a cooling-off period to assess how well their post-Brexit international supply chains are working.

Current position

For many, the run-up to the end of the Brexit transition period on December 31, 2020 involved hasty preparations for the start of the UK’s new international trade position. From a VAT and tariff perspective, businesses trading in goods have faced the most significant changes. These changes were significant and created “business critical” risks that organizations faced, both minimizing the impact on their margins and ensuring the ability to continue doing business with their customers and suppliers. There have been high profile reports of companies deciding to shut down specific sales channels and unforeseen costs that arise when importing goods into the UK.

In the first months of 2021, organizations mainly reacted to the new Brexit rules from a technical and practical point of view. There were several “myths” about how the UK / EU trade deal was going to work with the reality of the new procedures, which resulted in considerable friction. For example:

  • An increase in non-tariff barriers such as the need for businesses to submit import and export declarations when goods cross the UK / EU border, which is a new procedure for many.
  • Despite some political titles, the UK / EU trade deal was not completely duty free. Zero tariffs only apply to goods originating in the UK or the EU. Goods originating in another country may not fall within the parameters of the UK / EU preferential trade agreement, meaning that they are potentially subject to positive tariffs when imported. Likewise, goods manufactured in the EU, shipped to the UK for storage, and then shipped separately to another location in the EU are unlikely to qualify for the preferential zero duty rate.

How to know what you don’t know

The magnitude of the changes resulting from the UK’s exit from the EU differed from company to company. Yet organizations have generally focused on ensuring that they have taken the minimum steps necessary to ensure that their products can reach their customers after January 1, 2021. It should be remembered that organizations juggle and continue to juggle with the impact of the Covid pandemic on their activities. . Now that organizations have had several months to adjust to the new Brexit rules, many are entering a period where they have the resources to assess whether their arrangements are optimal or not.

From a UK import perspective, one way to assess the impact of Brexit so far is to look at the company’s MSS data. This is a dataset available from HMRC that details exactly what information was reported to HMRC for all imports during the period. Obtaining and reviewing this data can be eye-opening for a business because organizations “don’t know what they don’t know.” Brexit has also resulted in a general increase in imports and often by organizations that are not familiar with the import process, increasing the chances of error. Examination of the data may find unexpected imports, incorrect classification codes, or a lack of request of preferential origin, which means that the duties have been overpaid. Of course, the data could also reveal errors indicating that tariffs were not paid enough. But the main point is that the data will show the company precisely what has been reported to HMRC so far, providing a platform to assess whether improvements can be made.

An optional deferred import declaration system has been available to UK importers since January 1, intended to keep shipments moving but submit the declaration to customs later – within 175 days. MSS reports will not show the details of these imports until the corresponding supplementary declaration has been submitted. HMRC is now warning importers that failure to submit additional declarations within this timeframe may result in civil penalties.

Other changes

As part of their initial response to Brexit, many organizations mapped their existing supply chains and then identified the immediate tax changes that follow. In the future, there may be business changes in supply chains, such as establishing a presence in the UK or the EU, opening additional warehouses and change of place of importation of goods. These developments will result in changes in customs duty and VAT requirements which will require management.

There may also be more tax efficient ways to tap into existing supply chains. Some companies may wish to explore the use of tariff relief such as inward processing, exemption of returned goods or customs warehousing to mitigate the cost of import tariffs. These are specific reliefs that can help ease the payment of import taxes when the goods do not stay in the country. The reliefs will be of particular interest to organizations that temporarily move goods within a country to manufacture / process them before moving them to another location. Crossing a customs border usually results in the payment of irrecoverable import taxes, so multiple movements and payments can negatively impact margins.

For e-commerce businesses, there have also been new EU VAT rules to manage which came into effect on July 1, 2021, resulting in new VAT processes and requiring changes to VAT registrations. There are several areas of uncertainty with the new rules, and their implementation has proven problematic for many organizations.

In summary

From January 1, 2021, the UK introduced a new international trade relationship. For many organizations, the lack of certainty caused by the UK-EU trade talks which only concluded at the end of December 2020 has meant that the first months of 2021 have been spent heavily. responsive, with organizations ensuring that their products can get to customers. . Now that the immediate hurdle has been overcome, organizations are encouraged to consider whether their arrangements have any hidden costs that can be removed or made more effective from a VAT or tariff position.


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