Brexit is once again on the radar of people and businesses across the UK, according to recent YouGov research.
In a poll taken on 12 October 2020, respondents cited it as the third biggest issue facing the country (just behind health and the economy).
This is undoubtedly because 31 December 2020 marks the end of the Brexit transition period. It’s not yet fully known what will happen after this date with regard to trade between European Union (EU) countries and the UK.
Although Brexit impacts everybody living in the UK, businesses have always faced an immediate requirement to adapt because free trade in both goods and services across the EU, as well as the free movement of employees, are set to change.
Those in the hospitality industry fear not being able to recruit employees from the EU, for example, while importers and exporters are worried about delays at the UK and EU ports.
Earlier surveys about Brexit have shown that businesses cite as important a need to know how the UK no longer being in the EU will impact the application of numerous things, including:
- Taxes and duty
- Safety standards
- Personal data
- The movement of people
- The movement of goods.
This article answers frequently asked questions about Brexit that might help the transition process in your organisation, based on current understanding. This is a developing situation and we’ll update this blog when more is known.
This article covers the following questions:
1. What is Brexit?
In a referendum on 23 June 2016, the UK electorate voted to leave the EU.
The UK formally left the EU on 31 January 2020, at which point a transition period began. This will end on 31 December 2020.
Most EU laws applying to the UK still apply during the transition period because they became ‘retained EU law’ as part of the Withdrawal Agreement Act (with necessary modifications to remove references to, or reliance upon, EU institutions).
Negotiations continue between the UK and EU governments to decide how the movement of goods, services, people and capital across the UK/EU borders will be processed following the end of the transition period.
Key from a business perspective is that the UK was a member of the EU’s single market and customs union, which enables its member states to function as a single trading area with no tariffs or border checks, and with a combined VAT system.
For UK businesses, all these aspects of international trade will change to a greater or lesser degree following the end of the transition period.
2. What is the Brexit transition period?
Although the EU and UK continue to negotiate, they agreed upon the UK-EU Withdrawal Agreement in October 2019, which became UK law as part of the Withdrawal Agreement Act.
Among other things, this allowed for a period following Brexit during which the UK continued to apply EU law, even though it’s no longer part of the EU’s institutions.
This period is referred to variously as the transition period, the implementation period, and the withdrawal period.
Effectively, the transition period means everything continued as it ever did for UK citizens and businesses until 31 December 2020.
Although the transition period could’ve been extended in July 2020, the UK and EU decided not to do so.
Is your business ready for Brexit?
Need help getting your business ready for Brexit? We're here and ready to support you to make the necessary changes for your company.
3. When does Brexit happen?
Brexit has already happened.
The UK officially left the EU at 11pm (BST) on 31 January 2020.
This occurrence was surprisingly low key, to the extent that some have not yet realised the Brexit date has passed. But it has and the UK is now in the transition period, which ends on 31 December 2020.
4. What is no-deal Brexit?
There have been two potential no-deal outcomes since the UK voted to leave the EU.
The first was in the run up to the Brexit date of 31 January 2020. This was also known as a hard Brexit. However, a withdrawal agreement was put in place, and this outcome was averted.
Now the transition period is ending, the prospect of another kind of no-deal outcome has arisen.
In this scenario, and purely from a business perspective, the UK will not have reached trade agreements with the EU by the end of the transition period on 31 December 2020, meaning higher trade tariffs might apply.
More extensive border checks will also be required, which will slow freight across the UK-EU borders.
Vast quantities of resource and infrastructure have been directed towards the goal of avoiding no-deal Brexit outcomes, and this is accelerating as we approach the end of the transition period.
Irrespective of the outcome of any free trade agreement the UK will take on ‘third country’ status in the eyes of the EU.
However, a free trade agreement will mean some of the trade friction points relating to tax, customs, the movement of goods and people may be eased or not be required.
But if no agreement can be reached by 31 December 2020 then a no-deal outcome will occur.
Whichever outcome occurs, significant changes for businesses will be required immediately as of 31 December 2020.
5. How does Brexit affect trade and how will Brexit affect my business?
In broad terms, and outside of niche industries such as farming or medical research, the following areas of business will likely have to be examined and potentially revised with regard to either the new regulations that the UK and EU will agree, or a no-deal scenario should agreements not be reached.
This is largely because the UK will no longer recognise institutions that oversee these areas, or will no longer be a part of the EU free trade area:
- Import and export of goods to and from EU countries, including associated VAT payments, VAT refund claims and (potentially) custom and excise duties.
- State aid, including grants and block exemptions.
- Transport and logistics, including fulfilment.
- Product safety or eco-compliance, including packaging and labelling that references EU licensing.
- Copyright, trademarks and patents.
- Environmental industrial standards, including emissions.
- Transfer of personal data between the EU and UK.
- Mutual recognition of qualifications and relevant licences (including audit, banking and insurance licences).
6. What do we know about Brexit business rules so far?
Here are summaries of what’s known about the some of the major regulatory requirements that change following the end of transition period, along with links to UK government guidance.
Many of these new rules and regulations apply just to England, Scotland and Wales – that is, the countries within the island of Great Britain (GB).
Because of its border with Ireland (and therefore the EU), the rules and regulations about trading between Northern Ireland, the EU and the rest of GB are different.
The full extent of these is again not yet clear.
Importing to GB from the EU following the end of the transition period
Generally speaking, importing goods from EU countries will switch to being a similar process to importing goods currently from non-EU countries.
Note that there are different rules for goods sent by post.
This means the goods are eligible for customs duties and import VAT.
For the first six months following the end of the transition period (up to 30 June 2021), you can optionally make a supplementary declaration for imported goods from the EU.
This means you record the goods in your own record keeping, account for the VAT if you’re eligible, and make the declaration up to six months after the goods were imported.
To make use of simplified declarations, you’ll need to:
- Apply for authorisation
- Get a CHIEF badge (and have software that can access CHIEF)
- Have a duty deferment account.
Because of the complexities around importing and exporting, many businesses prefer to use a third party expert such as freight forwarding, customs agents or fast parcel operators to ease the paperwork.
Note that, from 1 January 2021, these need to be in the UK to be authorised to complete the customs formalities on your behalf.
Postponed VAT accounting for imports following the end of the transition period
If you import goods from anywhere outside GB (or possibly the UK depending on the final rules) after the end of the transition period, and those goods are for use in your business, you can use postponed VAT accounting to avoid the requirement to pay import VAT immediately upon the goods entering the UK (e.g. at the port of entry).
With this, you declare the import VAT on your VAT Return. This avoids paying VAT and then reclaiming it later.
There’s no need to get authorisation from HMRC to use postponed VAT accounting, but you’ll need to include your EORI and VAT number on the customs declarations.
Note that different rules will apply to VAT on goods imports not exceeding £135 in value.
Consignments under £135 will no longer attract import VAT and instead supply VAT will be applied at point of sale by the seller.
If being sold to a consumer or non-VAT-registered business, the seller should charge UK VAT and will therefore need to have registered with HMRC and account for UK VAT.
If being sold to a VAT-registered business then the UK VAT will be reverse charged to the customer. This will then lead to the goods clearing customs quickly.
Exporting goods to the EU following the end of the transition period
To export goods, the rules as of 1 January 2021 are again similar to those used currently when exporting goods to non-EU countries.
As with importing, you’ll need an EORI number beginning with GB.
The big change for most businesses will be a new requirement to make customs declarations. Again, you might choose to use a UK-based freight forwarder, customs agent or fast parcel operator to ease the administrative requirements.
Additionally, some goods may need export licenses or certificates.
As an alternative, the simplified declaration procedure can be used for some kinds of exported goods.
This means you don’t need to provide as much information as a full declaration up front, and can instead use a pre-shipment advice declaration.
But you still need to provide the rest of the customs export information at a later date.
To use simplified declarations, you’ll need to be authorised by HMRC and be registered to use the National Export System.
You can also simplify export paperwork requirements using the entry in declarant’s records procedure, although this only applies to goods that don’t need a pre-departure declaration.
Note that VAT will not apply to most exports, which is to say, they should be zero-rated.
Exporting goods to non-EU countries from the UK after end of the transition period
Upon the end of the transition period, the UK will no longer be part of existing trade agreements between the EU and certain non-EU countries.
The government is hoping to put trade agreements in place. But until then the UK will export to non-EU countries using the World Trade Organisation (WTO) Most Favoured Nation (MFN) rules.
The list of countries this applies to currently includes the US, which is the UK’s largest trading partner.
This means you must use the US import and quota tariffs agreed under WTO rules, which can be viewed on the WTO Market Access Conditions (MAC) website.
You might find that there are already product testing, certification and conformity agreements in place. For example, the UK and US have agreed to mutually recognise each other for these conformity assessments.
In any event, it’s very likely that – following the end of the transition period – exports to non-EU countries will need to considered on an individual basis.
The government has provided individual guidance for each country that will updated as more information becomes available.
Product certification and conformity marking after the end of the transition period
If products you manufacture typically require certification, there are four sets of UK government guidance relating to where the products are manufactured and put on sale:
- Placing goods on the market in England, Wales and Scotland (known as Great Britain)
- Placing goods on the market in EU countries
- Placing goods manufactured in Great Britain on the market in Northern Ireland
- Placing goods manufactured in the EU on the market in Northern Ireland
Selling goods in the UK that currently require a CE mark? This will need to be replaced with the UKCA mark for products sold in England, Scotland or Wales.
For goods sold in Northern Ireland, the rules are still being negotiated but it’s likely that goods will require either the UK(NI) or the CE mark.
Notably, until 1 January 2022 it remains possible to place goods on the market in Scotland, England and Wales using the CE mark, provided they meet EU requirements (where these match UK requirements).
This is intended to ease business transition.
Business travel to most EU countries following the end of the transition period
Existing passports can still be used following the end of the transition period on 31 December 2020. This applies to existing burgundy-coloured UK passports that have EU markings.
But you’ll need to have at least six months left until expiry if you wish to travel to most EU countries (with the notable exception of Ireland).
If your passport expires sooner, then you must apply for and receive a new UK passport.
Additionally, passports over 10 years old since the date of issue will need to be renewed even if they had ‘extra months’ added to the 10-year total following a previous renewal.
It’s not yet understood how state-provided travel/health insurance will work when travelling to the EU after the end of the transition period (that is, EHIC and similar). Private travel insurance is, of course, available.
7. My business is based in the UK and only has UK customers. Will I be affected by Brexit?
There are virtually no businesses in the UK that won’t need to make changes at the end of the transition period. The question is one of degree and all businesses should examine their processes.
While the UK leaving the EU presents many business opportunities, it’s likely the end of the transition period will affect businesses in many subtle ways that will take some forethought to plan for.
For example, you might be a car maintenance business serving only UK customers but the replacement parts you require might not be manufactured in the UK.
Even items manufactured outside of the EU might be centrally warehoused in the EU before being dispatched to you.
There may be delays at ports for goods in customs clearance areas in the initial period following the end of the transition period.
Additionally, there may be extra costs involved with customs import duties that you formerly didn’t have to pay, and significant administrative overheads, including utilising an EORI number.
You may need to source new local suppliers to avoid possible delays and/or plan for these delays and fees in your existing procedures.
You might hold data on EU citizens who are customers, or suppliers, in which case sharing it with suppliers or customers in the EU might not be permissible for some time until agreements are in place (see ‘How will Brexit affect the GDPR?’ below).
The business might have a trademark that you wish to continue to protect outside the UK.
If you’ve utilised an EU trademark (EUTM), you might need to register it afresh in whatever intellectual property protection mechanisms are put in place for UK businesses trading overseas following the end of the transition period.
A service-based business might fall into the classification of serving only domestic customers with no direct reliance on EU sources – for example, a marketing agency.
However, even then the business may hold personal data on EU citizens (see ‘How will Brexit affect the GDPR?’ below), or potentially even use a website that has an .EU domain, in which case you’ll no longer be able to use that domain unless your business has its principle place of business within the EU.
The business might also rely on EU citizens for staffing. This might not just be in your front-line staff but potentially within ancillary or support roles, such as office maintenance or cleaning.
These might be sub-contracted through agencies, of course.
If nothing else, all UK businesses will serve a client base that will be affected by Brexit changes, so some forethought on how the end of the transition period will apply to your business is necessary.
8. Will I still be able to employ EU citizens after Brexit?
Until 30 June 2021, you’ll need to continue to check the right to work status of any EU/EEA/Swiss job applicant in the same way as before Brexit/the end of the transition period.
As of 1 January 2021, EU citizens moving to the UK for work will need a visa. To get this, they’ll need to show they have a job offer from an approved employer sponsor.
Therefore, if your business recruits from the EU then you should apply to become an approved sponsor, which typically takes eight weeks from the date of application.
In order to remain working in the UK, your existing employees who are EU, EEA or Swiss citizens – and who are already in the UK as of the end of the transition period – will need to apply to the EU Settlement Scheme by 30 June 2021.
Two kinds of statuses are awarded:
- Settled: For those who’ve lived in the UK for a continuous five-year period as of 31 December 2020
- Pre-Settled: For those without five years continuous residence at that date.
Notably, the requirement to apply to the EU Settlement Scheme does not apply to Irish citizens.
9. How do I perform a Brexit impact assessment?
Businesses should already be in the process of discovering how the end of the transition period will impact them in order to revise existing processes and plan any necessary changes.
The first step is to organise an impact assessment. If you haven’t already begun, here are some questions to kick-start the planning and discussion processes. (This list is by no means exhaustive or authoritative.)
Employment and services
- How is your workforce affected?
- Do you employ any EU citizens, in the UK or in the EU, or do you plan to?
- Does your business rely on any specialist or service located in the EU – even if you ordinarily communicate with a UK branch of the business?
- Do any of your staff need to travel to EU countries?
- Does your business have any European trade union obligations?
- Do any standards govern the work you do, such as European EN standards?
Import/export and logistics
- Does your business import or export goods to or from the EU?
- Do you use an agent or utilise license schemes?
- Do you or any of your suppliers temporarily store goods in a warehouse based in the EU, even if they’re manufactured elsewhere (such as China)?
- Do you work with fulfilment agencies?
Taxes and money
- Is your business VAT registered or do you operate under the MOSS agreement?
- Does your business hold money in EU financial institutions, or use any other financial instrument located outside the UK?
- Does your business rely on funding or grants that comes from the EU? (Notably, even some funding that appears to come from the UK government is often backed by the EU.)
- Does your business own any patents, trademarks or registered copyrights?
- Does your company manufacture products that must certify to EU safety, security or ecological standards?
- Is any of your data hosted in an EU country (including cloud storage)?
- Do any employees travelling within the EU have mobile phone coverage for both data and calls?
- Do you hold personal data about people based in the EU on UK servers?
- Do you provide any services that are restricted to people holding a relevant qualification?
- Do you dispatch goods or documentation to the EU via postal or courier services?
10. My business sells to UK individuals but is not based in the UK or EU. Will I be affected by Brexit?
The Brexit process has introduced several new rules you should be aware of, mostly relating to import taxes. Among other things, these new measures include the following three points:
1. Low Value Consignment Relief (LVCR)
Previously relieving import VAT on consignments valued at £15 or less, LVCR is being abolished as of 1 January 2020.
2. Consignments not exceeding £135
Consignments not exceeding £135 in value will have UK supply VAT applied, rather than import VAT.
The way in which VAT is applied will depend on whether the goods are being sold to VAT registered UK businesses or to UK consumers.
If sold to a consumer the seller, will need to charge UK VAT at point of sale. But if selling to a business, the VAT can be reverse charged and accounted for by the customer.
3. Online marketplaces (OMPs)
Where involved in facilitating the sale, OMPs may be responsible for collecting and accounting for VAT with HMRC.
In addition: Hidden costs to be aware of
You should also watch out for incidental and/or hidden costs within all of your existing business processes.
For example, should any of your employees need to visit the UK, existing travel insurance that covers the EU might no longer cover the UK.
Hiring a car or using a mobile phone might be more complicated for the same reason, and moving freight within the country might be more complex too.
11. How will Brexit affect the GDPR?
The UK government adopted the GDPR into national law as part of the Data Protection Act 2018, so once the transition period ends, the same protections and requirements will apply.
In other words, how your business handles personal data won’t change if you have correctly implemented the GDPR within your processes.
The UK is hoping to become a ‘favoured nation’ via an ‘adequacy decision’ on behalf of the EU, which should facilitate the free transfer of personal data without the need to implement additional safeguards.
12. Are the financial markets affected by Brexit?
As the negotiations continue, Brexit continues to affect business confidence both in the EU and UK, with both positive and negative swings.
Uncertainty around no-deal outcomes following the end of the transition period continues to affect euro and US dollar exchange rates against pound sterling, with both showing volatility reflecting the market’s consideration of the latest announcement from either the UK or EU leaders.
13. Are Sage products ready for Brexit?
Sage has project teams who are focusing on preparing for implementations influenced by Brexit, whatever the outcome.
These include a programme of work designed to ensure all areas of our business and products will be ready for Brexit, irrespective of whether a free trade agreement is reached between the UK and EU.
Sage has always placed a high level of importance on legal compliance and customers can trust that Sage will address Brexit with the same attention and focus as is customary.
How will Brexit affect businesses? Final thoughts
There’s no doubt that preparing a business for the end of the transition period continues to be difficult due to the current uncertainty.
However, as we’ve shown here, there’s a lot of information available to help you prepare. Making good use of it can mean the difference between being ready for changes and being left behind.
Editor’s note: This article was first published in November 2018 and has been updated for relevance.
The small business guide to import and export
Deciding whether to trade abroad is a big decision for any small business. Learn what you need to do take the leap and discover how importing and exporting can benefit your company.