As of 1 January 2021, UK businesses have to consider imports and exports to and from European Union (EU) countries as they do for countries outside the EU.
This means complex customs procedures apply and the way VAT is accounted for also changes.
However, the UK government has introduced a couple of measures that should ease the administrative load, and reduce the impact on cash flow.
Where are we with Brexit?
The UK officially left the EU on 31 January 2020, and most of 2020 has been spent in the transition period.
This ends on 31 December 2020, meaning new rules are implemented on 1 January 2021.
Until the end of the transition period, businesses have had to make few if any changes in order to continue day-to-day business.
The UK has remained within the EU customs and VAT systems, for example. This means there has been no trade borders between the UK and EU countries, and therefore no customs formalities.
However, major adjustments are required for businesses that import or export to the EU as of 1 January 2021.
The way customs and VAT are handled will become like that for trading with non-EU countries, and this will be the case regardless of whether the UK is able to negotiate a deal with the EU.
In other words, there will be trade borders and customs formalities to deal with – which is what this article explains.
The government’s advice is that you hire a customs broker, freight forwarder or similar operative to help with customs relating to importing and exporting – although these agents are unlikely to help with VAT, for which you will need your own knowledge, perhaps with the help of an accountant.
But customs issues can be complicated, especially if you’ve only experienced seamless movement across EU borders until now.
Throughout this blog we sometimes refer to Great Britain, which is the geographical territory comprising England, Wales and Scotland. This is separate from the United Kingdom, which comprises England, Wales, Scotland and also Northern Ireland.
This distinction is important because, in terms of imports and exports, Northern Ireland will be treated differently compared to the rest of the UK. See the heading towards the end of this blog: “Northern Ireland VAT and customs after 1 January 2021”.
This is a comprehensive article and as such is split into three parts:
- Part 1: Importing from the EU to the UK once the Brexit transition period ends
- Part 2: Exporting from the UK to the EU once the Brexit transition period ends
- Part 3: VAT implications for your business
To easily navigate the article, click on the links below to find the information you require:
- Delaying customs import declarations for up to six months
- EORI number
- Commodity codes
- Applying tariffs
- Customs declarations
- Duty deferment account
- Import licences
- Transport logistics
- EORI number
- Commodity codes
- Export declarations
- Export licences
- Transporting goods
- Trade tariffs
- How will VAT change after Brexit?
- Import VAT
- VAT on imports £135 and under
- VAT on exports
- Northern Ireland VAT and customs after 1 January 2021
Part 1: Importing from the EU to the UK once the Brexit transition period ends
Here’s what you need to know, or setup, before importing goods from the EU after the end of the transition period (1 January 2021).
Delaying customs import declarations for up to six months
This is one of the biggest aids for businesses that will be importing from the EU in the immediate aftermath of the transition period ending.
For most goods, there’ll be no need to make immediate import declarations for goods at the UK border, or get authorisation in advance. This will be the case for six months, from 1 January 2021 to 30 June 2021.
The exceptions are if the goods are controlled (such as alcohol, tobacco and hydrocarbon products), or if HMRC explicitly says you can’t use this scheme when you apply. This might be the case if your business has a poor record in other areas of compliance.
There are a handful of qualifying factors for use of the system:
- Your business must be in Great Britain. The Northern Ireland Protocol means Northern Ireland has its own rules (see the Northern Ireland VAT and customs after 1 January 2021 section).
- The goods must have been in free circulation in the EU prior to import to the UK.
- Because you will make a supplementary rather than full customs declaration within six months of the import date, you’ll need to have been authorised by HMRC to use simplified declarations. Most businesses will rely on their customs broker or freight forwarder to make the customs declarations. But if you do this yourself, rather than via a third party, you’ll need to be registered for the CHIEF system (known as getting a CHIEF badge), and have CHIEF-compatible software.
- Since simplified declarations require a duty deferment account, you’ll also need to apply for this with HMRC.
To use this system, and as mentioned earlier, you’ll need to use simplified declarations.
This can mean making a simplified frontier declaration for each import, or you can make an entry in your own records for each import, known as Entry In Declarant’s Records (EIDR). You have to choose which to apply for and use ahead of time.
This should record the customs import information.
As mentioned above, you’ll also need to make a supplementary declaration within six months of the import. You might have to make an Intrastat declaration too.
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An Economic Operators Registration and Identification (EORI) number is a way of identifying businesses or operators who export or import to the EU. It will be required for both customs and VAT documentation.
UK businesses will need one or more of three different types of EORI number as of 1 January 2021, depending on where you import and export:
- Business in Great Britain: To trade goods with EU countries, you’ll need an EORI number that starts with GB. However, if your business only moves goods between Northern Ireland and the Republic of Ireland – and nowhere else – then it won’t usually require an EORI number.
- Businesses moving goods to or from Northern Ireland: If you move goods to or from Northern Ireland (outside of moving goods to the Republic of Ireland), you’ll need a second EORI number that starts with XI.
- Businesses making declarations or getting customs decisions in EU countries: If your business makes declarations or gets customs decisions in an EU country, you’ll need to get an EORI from the customs authority in the EU country where you submit your first declaration, or request your first decision.
If you previously used an EORI number from the days of the UK’s membership of the EU, you may need to apply for one or more additional EORI numbers. However, if you already have a number starting with GB and don’t declare customs in the EU or deal with Northern Ireland, this will be sufficient.
Starting in late 2019, HMRC began automatically issuing new EORI numbers that begin with GB to UK businesses it believed need them.
If you haven’t received one, you should apply now. HMRC says it can take a week for the application to be completed.
Furthermore, in December 2020, HMRC will begin automatically issuing EORI numbers that begin with XI to businesses it believes need one.
However, you won’t get one unless you already have an EORI beginning with GB, so you should apply ahead of time if you haven’t got one.
Customs relies on the correct classification of goods so the correct tariff and quota can be applied. Different parts of the world call the classification code different things.
But fortunately they’re all based on the same Harmonised System (HS) maintained by the World Customs Organisation (WCO) – numeric codes that in theory can be applied to every kind of import or export to describe and classify them.
Within the EU and UK, these codes are known as commodity codes (CC). They’re required for import and export documentation, and they decide the tariffs and VAT (if any) that you’ll have to pay.
Therefore, it’s important to use the correct commodity code.
As of 1 January 2021, the UK will use continue to use the same code system as is currently used in the EU.
Commodity codes are eight digits long for goods you export and 10 digits long for goods you import.
You’ll need to know which code applies to the goods you wish to import – the government offers a free look-up tool online.
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Tariffs are a form of tax paid on imports, applied by the country to which the import is made.
In other words, tariffs in the UK are payable to HMRC. Also referred to as duty, tariffs are calculated at customs based on the commodity code.
As of 1 January 2021, the UK Global Tariff (UKGT) will replace the EU’s Common External Tariff. It will apply to all imports from countries for which the UK does not have a trade agreement.
This will include countries within the EU in the event of a no-deal outcome at the end of the transition period, in which an UK-EU trade agreement hasn’t been agreed.
You can check the tariff for an import using the government’s website look-up tool.
If you’re importing only a limited amount of a product – measured in terms of weight, volume, quantity or value – you might be able to use a tariff-rate quota. This means you could pay zero tariff, or a reduced rate.
If you export to an EU country, the customer may need to pay an import tariff. Again, this will depend on whether the UK and EU reach a trade agreement. You should speak to your customers about this possibility.
While simplified declarations can be used until 30 June 2021 for goods from EU countries, following this, your business will need to ensure that a customs import declaration is made for goods that enter the UK from other countries including the EU (unless they’re going into temporary storage).
The declaration includes a number of pieces of information including the EORI, commodity code, customs procedure code (CPC), the value of goods, the weight or size and country of origin.
Import declarations can be complicated and require software that can integrate into the government’s Customs Handling of Import and Export Freight (CHIEF) system.
Eventually, this will be replaced with the Customs Declaration Service, or CDS, which already must be used for goods moving to or from Northern Ireland (including goods moving between Northern Ireland and England, Wales or Scotland).
But as of now, the CHIEF system remains in use, and should be used as of 1 January 2021 for most imports and exports.
However, there may not be a need to create full customs declarations each time.
Most goods imported to the UK can use the simplified frontier declaration system. This can mean goods pass through UK customs more quickly, and can reduce the amount of work upfront to import goods.
However, you’ll need to make a supplementary declaration later.
You need to be authorised to use the simplified declaration procedures, and you’ll need a duty deferment account (see below). You’ll also need to use the CHIEF system, as mentioned above.
Duty deferment account
If you import regularly then paying duties, VAT and excise duty monthly might make more sense, rather than paying them immediately upon import.
A duty deferment account is a necessity for the simplified frontier declaration system, as described above, and the six-month window in which you can make deferred declarations from 1 January 2021 to 30 June 2021.
You may need to apply for licences to import certain goods into the UK, and some goods might require an inspection fee be paid.
Review the commercial terms of trade (Incoterms) in your contracts relating to importing goods. These will help you to understand who is responsible for customs duties, import VAT, and any additional transportation and insurance costs.
Additionally, Incoterms determine when risk and liability passes from the seller to the buyer – something that will not be as clear cut with customs borders, compared to the free travel of goods before Brexit/end of the withdrawal period.
The organisations you use to transport goods across borders, such as sea shipping, couriers or air freight, will need to know many of the details above before shipping commences. You should consult with them now to learn what they will require, and when.
There might be additional issues you’ll need to consider when importing goods, such as using the correct border inspection post and pre-notification of the movement of goods.
The government’s general Brexit preparedness tool for business will help you discover this information.
Part 2: Exporting from the UK to the EU once the Brexit transition period ends
Here’s what you need to know, or setup, before exporting goods from the UK after the end of the transition period.
You’ll need a UK EORI number beginning with GB or XI to export goods out of the UK. But you’ll also need to know the EU EORI number for the European business you’re exporting to.
If it hasn’t got one, it will need to apply for one in its own country.
This will involve contacting all the businesses you export to in the EU to ensure they have an appropriate EORI number ready for the end of the Brexit transition period.
If you’re moving goods to your own warehouse in the EU, you’ll need your own EU EORI number.
The importer in the EU will need to pay tax and duty on what you export to them. Therefore, it’s important to ensure you use the correct commodity codes.
As with importing, the government suggests you hire a freight forwarder, customs broker or fast parcel operator for making customs declarations. If making declarations yourself, you’ll need to register for and use the National Export System (NES), which will let you make declarations electronically. You’ll need what’s known as a CHIEF badge role.
Following this, you can make export declarations via the web, email, or using software.
To make web declarations, you’ll need a Government Gateway ID and password for your business.
To use email for declarations, you’ll need a standard email server (SMTP), and CHIEF-compatible software.
An alternative is to all these options is to use a Community System Provider (CSP). You can use your own import/export software to access their system, and therefore use their CHIEF registration. However, there will be a fee.
Some goods require export licences, and there are additional rules specific to alcohol, tobacco and certain oils, and for controlled goods. You’ll need to ensure you have these in place prior to export.
Businesses should review the commercial terms of trade (Incoterms) in contracts relating to delivery of goods for those you export to. These will help you to understand who is responsible for customs duties, import VAT and any additional insurance and transportation costs.
Additionally, they determine when risk and liability passes from the seller to the buyer – something that will not be as clear cut with customs borders, compared to the free travel of goods before Brexit/end of the transition period.
Businesses can utilise commercial goods transportation services, which is certainly the easiest option, or opt to use their own transport.
In the latter case, operator licences and permits will be required, the driver will need to be eligible to drive abroad (and will need to ensure they carry the correct documents), and there might be rules for certain goods that need to be transported.
Businesses that export a lot of goods might want to apply for authorised consignee and/or consignor status to avoid the need to use customs offices to start and end transit of goods.
Your customers in the EU may now have to pay tariffs when they import from you, when previously they didn’t need to do so. This will need to be part of your pricing calculations, and you might find it impacts demand.
You should discuss this issue with your clients so that it doesn’t come as a shock to them or cause their goods to be held in local customs.
Part 3: VAT implications for your business
In this section, discover how VAT will be changing (and what won’t change), learn about VAT on imports and exports, and find out how Northern Ireland will be affected.
How will VAT change after Brexit?
Domestic VAT rules remain the same following the end of the transition period.
However, VAT rules relating to imports and exports to and from the EU will change.
Prior to Brexit and during the transition period, the UK was part of the EU VAT regime. This means a UK business didn’t have to register for VAT in each EU country, and instead applies a common set of rules in relation to VAT.
It also means UK businesses were able to use various VAT simplifications such as distance selling thresholds and online VAT refund process.
However, as of 1 January 2021, UK businesses will treat EU countries like they already do countries outside the EU.
The VAT terminology will change accordingly. Trade with EU countries will cease to be called dispatches and acquisitions, and will instead be referred to as imports and exports – again, in line with trade with non-EU countries.
In broad terms, VAT will be payable upon import, although the UK government has introduced the postponed VAT payment system to avoid cash flow issues.
This lets businesses importing goods into the UK account for the VAT on their next VAT Return, and means the goods can be released from customs without the need for VAT payment.
This means that nothing will effectively change from a cash flow point of view compared to before, although there will obviously be new administrative requirements.
Note that the rules for Northern Ireland again differ, and are explained separately below.
Prior to Brexit/end of the transition period, VAT-registered businesses applied VAT through the EU reverse charge on intra-community acquisitions.
For goods imported from anywhere in the world, they have to account for import VAT. And as of 1 January 2021 this will include the countries within the EU.
The above applies only the value exceeds £135. For imports beneath this amount, there’s still a need to account for VAT but you must use the new e-commerce rules (even if the goods were not traded via e-commerce). See the ‘VAT on imports £135 and under’ section below.
The VAT is applied at the point the goods are to enter free circulation, which is to say, this should be considered the VAT tax point.
This might be at the port of entry but it could be when the goods are released from customs warehousing, if customs special procedures are used.
However, you’ll need to collect evidence from HMRC regarding the point the goods entered free circulation for your VAT records.
The VAT can be paid at the tax point if you wish, in which case monthly C79 reports should be obtained from HMRC, as when importing from outside the EU.
But most businesses are likely to make use of the postponed VAT accounting system.
This is similar to the existing reverse charge mechanism, whereby import VAT is not physically paid upfront and then reclaimed on the subsequent VAT return. Instead, it’s accounted for as input and output VAT on the same VAT Return.
Although postponed VAT accounting is optional, it’s mandatory if you defer the submission of customs declarations.
It’s worth remembering that postponed VAT accounting can now be used for all imports outside of the EU too.
This represents a change from how VAT was accounted for prior to the end of the transition period, and is likely to provide a cash flow boost for businesses that import from outside the EU.
A new online monthly statement will be available as part of the postponed VAT accounting system. It’ll show the import VAT postponed for the previous month on a transactional basis and when you should include it in your VAT Return (that is, the correct tax point).
When it comes to VAT on services, as a general rule following Brexit/end of the transition period, sales of cross border purchases of services from one business to another (B2B) will remain subject to tax in the country of the customer (with some exceptions).
Therefore, the tax is generally accounted for as reverse charge in the destination country by the recipient of the service.
VAT on imports £135 and under
Alongside the end of the transition period on 1 January 2021, the UK is introducing additional measures for overseas goods arriving into Great Britain from outside the UK:
- Low Value Consignment Relief (LVCR) is being removed. Previously, this exempted imports with a value below £15 from import VAT.
- Online marketplaces (OMPs), where they are involved in facilitating the sale, will be responsible for collecting and accounting for the VAT.
- VAT on imports with a consignment value of £135 or lower will have VAT applied at the point of sale, rather than applied as import VAT at customs. For B2C transactions this UK VAT will be charged and collected by the seller but for B2B transactions the VAT will be revere charged to the customer.
Essentially, this means foreign sellers sending goods into the UK will need to charge UK VAT and apply to be part of the UK VAT system when supplying goods with a value of £135 or less to end consumers (that is, non-VAT-registered individuals).
Businesses who receive goods of £135 or less will have to account for the VAT as part of the reverse charge procedure, declaring the VAT on their next VAT Return. Normal rules apply for the tax point, which is to say, it will usually be the invoice date.
Additionally, the recipient business should ensure the seller knows their VAT number, or the seller will have no choice but to treat it was a B2C sale and apply VAT.
The UK measures in some respects mirror those due to be rolled out in the EU from July 2021 under the EU 2021 VAT e-Commerce Package, which we’ll be covering in a separate blog.
VAT on exports
As of 1 January 2021, when it comes to exporting goods to EU countries, the VAT situation also changes. Exports to EU countries are treated like those to non-EU countries, which is to say, they should be zero-rated for UK VAT.
This will apply regardless of whether you’re exporting goods to a consumer (B2C), or to a business (B2B). In other words, there’s no longer any need to observe distance selling regulations, or to verify the VAT status of the recipient business.
This could mean businesses selling B2C to the EU need to register for EU VAT and appoint fiscal representatives depending on the requirements of the countries in which they sell.
It’s important to understand what it means to zero-rate goods for VAT.
It doesn’t mean you can simply forget about VAT. It means you apply a 0% VAT rate. No VAT is payable but you still have to include the exports as part of your VAT accounting.
When it comes to purchasing services, rather than goods cross-border, things continue much as they did before 1 January 2021.
Under the place of supply rules, B2B sales of services will continue to be generally subject to tax in the country of the customer and administered through reverse charge, with some exceptions. B2C sales of services will continue to be generally subject to tax in the country of the seller, again with some exceptions.
However, UK businesses that use the Mini One-Stop Shop (MOSS) system will need to register for the non-union MOSS and will no longer benefit from a €10k threshold before having to apply the place of supply rules.
This means many more businesses may be liable to VAT in the countries they sell digital services to and will need to register for non-union MOSS.
Northern Ireland VAT and customs after 1 January 2021
When it comes to customs and VAT after the end of the transition period, Northern Ireland isn’t like the three other countries that comprise the UK.
It will use the Northern Ireland Protocol, which is part of the Withdrawal Agreement between the UK and EU that aims to avoid a customs border (known as a hard border) between Northern Ireland and the Republic of Ireland (ROI).
There are different rules for the supply of goods and services, and this is what is currently proposed by the government:
Northern Ireland will remain part of the EU customs and VAT regime when it comes to trade with the Republic of Ireland and the rest of the EU.
From a customs perspective, moving goods from Northern Ireland to Great Britain won’t change. There will be no additional processes, paperwork, or restrictions.
From a VAT perspective, these movements will continue to be treated like domestic sales and purchases as they are today. This means that, among other things, there won’t be import VAT due on movements.
Services are excluded from the Northern Ireland Protocol, so sales of services between Northern Ireland and the Ireland/EU from 1 January 2021 will be treated like Third Country supplies.
As already mentioned, this results in very little change from a VAT perspective. Similarly, nothing will change for supplies of services between Great Britain and Northern Ireland, and they will continue to be considered domestic supplies.
Trader Support Service
The UK government will run a new Trader Support Service for businesses moving goods to and from Northern Ireland. This will provide free support to businesses buying and selling between Northern Ireland and Great Britain. The support service will also be help if you bring goods into Northern Ireland from outside the UK.
However, negotiations are still taking place between the UK and EU to decide how goods will be moved between Northern Ireland and the UK with regard to customs and VAT. The rules above could be altered.
Conclusion on customs and VAT after Brexit
As we move closer to the end of the transition period, it’s clear the UK government has taken measures to try and minimise disruption for businesses.
But the simple fact is that the new customs and VAT requirements represent a significant upheaval for all businesses. Work needs to start now, if it hasn’t already, on making preparations.
For example, you should immediately review supply chains and assess the potential implications, such as the need for EORI numbers, changes in VAT reporting obligations and payments.
You should ensure you meet the evidence requirements for VAT zero-rating exports. Systems changes may be required, so speak to your IT/software services provider.
You may need to seek help with customs, such as employing a customs broker or freight forwarder. Remember that as the end of the transition period gets closer, customs brokers and similar agencies are likely to become fully booked.
Or you may need to invest in new IT infrastructure if you intend to do-it-yourself via the CHIEF badge system.
You should talk to the suppliers of any invoicing or accounting software you use and understand if you need to make any changes or upgrades to ensure that Brexit-related changes will correctly be applied.
Editor’s note: This article was first published in October 2019 and has been updated for relevance.