What the Brexit deal means for business in the EU

What great news to end a very tough year – the UK finally has a Free Trade Deal with the EU.

Businesses have craved this certainty and to have tariff and quota free trading conditions is the best possible outcome for businesses trading in and with the EU and UK.

Here’s what we know about the Brexit deal and what it means for doing business in the EU.

Trade

Under the agreement, goods originating from the UK or the EU will not be subject to tariffs, thereby providing for ‘free trade’ between the territories. The question of where goods originate from will therefore be very important, particularly where goods are assembled in the UK and where the component parts may have been imported. As expected, there are exceptions and special rules for certain categories of goods ranging from medicines to motor vehicles.

Whilst there may be ‘free trade’ between the territories, it does not mean that trade will continue as it did pre-Brexit. Importantly, whilst tariffs may not be applied, businesses will be required to complete import/export declarations for movement of goods. There could also be delays due to customs checks at the border which were not previously required.

Businesses will also need to consider the need to register for VAT in an EU territory to facilitate ongoing trade, particularly if selling directly to consumers.

Going forward the UK will no longer be required to follow EU law. Great Britain will also be free from the EU state aid regime, allowing the government to introduce targeted subsidies and incentives as it sees fits.

No doubt it will take businesses some time to adapt to the new trading arrangements and we will have to wait to see what the practicalities look like.

Northern Ireland Protocol

Due to the UK’s obligations under the Northern Ireland Protocol, customs declarations will be required when moving goods between Great Britain and Northern Ireland, or into Northern Ireland from outside the UK. To facilitate these movements, the UK has introduced a new Trader Support System (TSS). This is a free of charge online portal that enables businesses to provide details on their affected movements.

Northern Ireland (NI) will operate a dual VAT regime as part of the Brexit Withdrawal agreement. The rest of the UK, Great Britain (GB), will leave the EU VAT regime but NI will remain inside the EU VAT, Customs Union and Single Market for goods only. Goods moved between NI and the rest of the EU will continue to be treated as intra-EU transactions. Businesses in NI may be required to have two VAT numbers, their UK one and a special EU VAT identification number, the latter for continued VAT-free trade with EU suppliers.

Under the obligations in the Protocol, import VAT will be due on goods that enter Northern Ireland from Great Britain. Whilst this won’t change the way in which VAT is charged and accounted for on most sales from GB to customers in Northern Ireland, there is an important change where goods are moved but ownership does not change.

Services

UK financial businesses lose their access to EU customers (many larger firms have already established subsidiaries within the EU to continue access). In addition, whilst the UK has granted EU businesses temporary permission to continue servicing UK customers, there is no reciprocal EU agreement for UK businesses yet.

We expect regulatory discussions about “equivalence” in 2021 and hopefully, an arrangement whereby UK firms will get access to EU customers.

Digital services

UK businesses will no longer be able to use the VAT Mini One Stop Shop (MOSS) scheme. UK suppliers can register for the non-Union MOSS scheme in an EU member state, for example the Republic of Ireland. If you make supplies in January 2021, you must register by 10 February 2021.

In addition, UK businesses will no longer get the benefit of the current EU-wide VAT threshold for supplies of digital services to consumers (£8,818). This means that EU VAT will be due on all supplies of digital services to EU consumers, regardless of the value of the sales.

From 1 July 2021, MOSS will be extended to cover all B2C cross border services where the place of supply is deemed to be in the EU. This is likely to include legal and professional services, freight transport and the provision of information.

Tour Operators Margin Scheme (TOMS)

TOMS will continue to apply to all tour operators located in the UK. From 1 January 2021 the margin on designated travel services which take place inside the EU will be zero rated in line with the current treatment of supplies that take place outside the EU. The margin on travel services enjoyed in the UK will remain taxed at the standard rate except for passenger transport (the margin will be zero rated) and certain hospitality and accommodation services taxed at 5% until 31 March 2021 (the margin will be 5% rated).

This information is correct as of 12th January 2021. Visit our Brexit Hub for the latest updates:

www.carpenterbox.com/brexit