Brexit and your business

This blog is about business and Brexit – Frequently asked questions.  Some may say, the Good, the Bad and the Ugly.

Firstly, what a year 2020 has been so far for business and a challenging business landscape.  We’ve had the C word (Coronavirus), the F (Furloughing) word and on 1st January 2021 it’s the B word, Brexit.

Lots of questions about Business and Brexit, some answers we know, some answers are still unknown.  It feels like it’s easier to figure if Bigfoot or the Loch Ness monster are real!

Secondly, part of our business mission is to help business figure out the answers, cut through the noise, and provide support where we can.

What is Brexit?

Above all, Brexit is an amalgam of the words “British” and “exit”, referring to the U.K.'s decision to leave the European Union (EU).

As a result the U.K. is now in a transition period to negotiate a new relationship with the EU. Consequently, during this period, it does not have a say in EU policy, but will still need to abide by EU rules.

Meanwhile, the U.K. is renegotiating its entire trade relationship with the EU, at the date of writing this blog post negotiations are still a work in progress.

Most importantly, the economic impact of Brexit is not clear.  Likewise a lot will depend upon the terms of free trade agreements that the UK can negotiate with the EU and other key trading partners.

There will be new rules from January 1st. 2021.

This blog is about your Business and Brexit – Frequently asked questions.  Even Numbers Rock Stars like Pro Active Resolutions don’t know all the answers.  Where we can we added links for further guidance, crystal ball gazers have been excluded.

Introduction

Bear in mind the following phrases and references that will appear in this blog.

  • Transition period refers to the period up to 31st December 2020, strictly speaking 11 pm 31st December 2020.
  • Up to the 31st December 2020 we are still part of the EU.  Though the European union has already removed us as member on their website
  • From the 1st January 2021 we will be known as a third country, all countries outside of the UK will be known as the Rest of the World.

General Data Protection Regulation (GDPR)

GDPR (General Data Protection Regulation) is about the rules relating to how we collect and process personal data.  The Data Protection Act 2018 is the UKs implementation of GDPR. The GDPR is fundamentally an EU Regulation.  From  the 1st January 2021 it will no longer apply (in principle) to the UK.  However, if you operate inside the UK, you will need to comply with UK data protection law.

The UK Government intend to incorporate the GDPR into UK data protection law from the end of the transition period .  In practice there will be little change to the core data protection principles, rights and obligations found in the GDPR.

However, The EU version of the GDPR may still apply directly to you if you operate in Europe, offer goods or services to individuals in Europe.  EU GDPR is also relevant if monitor the behaviour of individuals.  James Bond and GCHQ have their own rules.

The GDPR will still apply to any organisations in Europe who send you data.  You may need to help them decide how to transfer personal data to the UK in line with the GDPR.

In the meantime, there are steps that you can take to ensure that personal data can continue to flow after the transition period ends.  The ICO, Information Commissioner’s Office is the head honcho for Data Protection.  Benchmark their site for regular updates on GDPR and Brexit,

EU settlement scheme

Your business may have EU/EEA/Swiss nationals living in the UK by 31 December 2020.  As a result, and assuming you wish to keep them to continue to live in the UK then register for the settlement scheme by 30 June 2021.

The EU Settlement Scheme is open. You can apply now if you meet the criteria.

The deadline for applying is 30 June 2021. You must have started living in the UK by 31 December 2020.

It’s free to apply to the scheme.

Customs declarations

Whatever the final outcome of any trade deal there will be paperwork! . Import and export declarations will be required for trade in goods between the U.K. and EU. Once the Brexit transition period ends, the U.K. will be outside of the EU and will no longer be part of the Customs Union or Single Market.

Goods that move into the U.K. from the EU after January 1, 2021 will be considered imports.  Currently movement of goods between the UK and the EU are known as intra-EU acquisition, not imports or exports.  This sounds bizarre, but it's true ! At the end of the transition phase Import value-added tax (VAT) and customs duties will be payable and customs declarations will need to be made.

The UK/EU withdrawal agreement expires at 11pm GMT on 31 December 2020. After that date, the UK will become a separate customs territory from the EU.  This means that from 1 January 2021, all imports, and exports of goods to and from the EU will become subject to customs procedures.  This will refer to EU goods imported into the UK and UK goods exported to the EU.

Any “deal” will affect the duty rate on eligible goods.  Those wonderful import and export declarations will still need to be made.

Customs controls

From 1 January 2021 these customs controls will apply:

  • If your business imports or exports outside of the UK you will have to complete UK and EU customs declarations.
  • Where your business imports goods then you need to ensure that any applicable customs duties under the new UK Global Tariff are paid.  You will need to determine the origin, classification and customs value of those goods.

Read on to find out about deferring any duty payments that may be due.

VAT will be levied on imports of goods from the EU, following the same rates  and structures as for the Rest of the World.  Where your business is VAT registered then you can use postponed VAT accounting.  If your business is not VAT registered, then you report and pay import VAT in the same way as they do for customs duties.

Freight forwarders and customs agents

If your business does not use an intermediary, such as a freight forwarder then you need to do the declarations yourself.

Consider the cost benefit of DIY Import and Export formalities.  Take into account that you will need to get access to HMRC systems and invest in software.

After 31 December 2020, the UK will be a third country, any goods sent to Europe will be classified as exports, any goods coming in from Europe will be classified as imports.  Prior to the 31 December 2020 those movement of goods would have been seen as EU would be intra-EU acquisition.

Economic Operators Registration and Identification number (EORI)

Effectively the movement of goods into and out of Europe will be treated in the same way as goods moving between the rest of the world. For that, you need an EORI   a U.K. specific EORI number will be needed to import into the U.K. Businesses that want to import into the EU will also need an EU-issued EORI.

Remember, from the 31st December 2020 all countries, including the 27 countries that are part of the EU, will be the rest of the world.

The actual application process takes a few minutes, but it can take up to a week to get the number. Your business may already have one if, for instance you were a auto enrolled VAT registered businesses with EU trade.

Any economic operator established in the customs territory of the Union needs, for customs purposes, an EORI number.

UK Tariffs from 01 January 2021

From 1 January 2021, the UK will apply a UK-specific tariff to imported goods.

This UK Global Tariff (UKGT) will replace the EU’s Common External Tariff, which applies until 31 December 2020.

UK trade tariffs from 1 January 2021

Every import and export declaration will need to include the commodity code of each item involved. This code will determine the rate of duty which applies on the products concerned.

There are over 15,000 codes and if a business does not currently know which apply to its products, it should confirm that position

The UK Global Tariff will apply to all goods you import from 1 January 2021 unless an exception applies.

You can check the UK Global Tariff that will apply to goods you import from 1 January 2021. You can also check the difference between what you pay now and what you’ll pay from 1 January 2021.

UK duty deferment accounts

If you import goods regularly, you can apply for a duty deferment account to delay paying most customs charges, for example:

  • Customs Duty
  • Excise duty
  • Import VAT

A duty deferment account lets you make one payment a month through Direct Debit instead of paying for individual consignments.

Apply for a duty deferment account if you’re an importer or someone who represents importers.

Consider using a customs agent to do duty deferment for you.

There are new rules for duty deferment that will apply in Great Britain (England, Scotland, and Wales) from 1 January 2021. Most traders will not need a financial guarantee with their duty deferment account.

You can apply now for a new duty deferment account and a guarantee waiver to avoid the need to get a financial guarantee.

VAT

Value Added Tax (VAT)

VAT is a Tax that is levied on goods and services provided by VAT registered businesses in the United Kingdom, to other VAT registered business and/or public.

Once your registered you must charge VAT and the selling of your goods and services, does not matter who your selling to in the UK.

The UK introduced VAT when it joined the European Economic Community (EEC) in 1973.

Will VAT continue after Brexit?

In theory the UK could abolish VAT after Brexit, but in practice, very unlikely. It has about much chance as being abolished as discovering the moon is made out of cheese.

HMRC VAT collects big money for the UK exchequer.   The Office for Budget Responsibility estimates VAT to raise £136.6 billion in 2019-20, 21% of total UK tax receipts.  The government has also indicated it will continue to have a VAT system in the UK.

Changes to Vat after Brexit

The big change after Brexit will be how VAT is charged on trade with the remaining 27 member states.  How big that change will be is all based  on the final negotiated outcome.

Place of supply

Currently, VAT is not normally charged on the supply of goods in a Business to Business (B2B) transaction.  Your business customer will charge itself VAT, known as acquisition VAT.  Money doesn’t leave your customers bank account for this VAT, just  some accounting transactions on the VAT return.

Rules are different for Business to Consumer transactions (B2C), plus some other exceptions.

  • For services, the ‘place of supply’ rules determines the country in which VAT is charged and accounted for.
  • For most supplies of services, the place of supply is decided by what’s known as the ‘general rule’. But some supplies are subject to special rules that will affect their place of supply.

The place of supply (POS) of a service determines whether the supply is within the scope of UK VAT and whether VAT is payable on that supply.

Place of supply of services

The general rule for Place of supply of services is that:

  • The B2B general rule for supplies of services is that the supply is made where the customer belongs.
  • The general rule for B2C supplies of services is that the place of supply is where the supplier belongs.  It doesn't matter where your customer is located.

To clarify, as with general rule there are always exceptions, what HMRC likes to call special rules.    

VAT Moss Scheme

The VAT Mini One Stop Shop (VAT MOSS) is a way of paying VAT on supplies of certain digital services if either:

  • you are a UK business who makes supplies to consumers in EU member states
  • your business is based outside the UK and EU and you make supplies to UK or EU consumers

So, for UK businesses making cross-border supplies where the place of supply is an EU member state, there is no registration threshold and VAT is charged at the rate due in the consumer’s country.

Where a business based outside the UK or EU makes supplies of digital services to consumers in the UK or EU, the place of supply will be where the consumer is located.

Where the threshold is exceeded, or if the business opts to ignore the threshold, the Mini One Stop Shop (MOSS), will be extended.  MOS  can be used distance sales cases, to avoid having your businesses registering and submitting VAT returns in each country you deal with.

UK suppliers of digital services to EU non-business consumers using the EU’s online Mini One-Stop Shop (MOSS) scheme will have to change to the ‘non-Union’ scheme to account for their sales. The MOSS allows non-established service suppliers to file a single VAT return – documenting their sales by member state of consumption – in only one member state.

This return is then distributed to the relevant member states so VAT can be charged accordingly.  Businesses established in non-EU countries who use the UK for their MOSS VAT return will have to move their MOSS identification to an EU27 member state to continue using the non-Union MOSS scheme.

Distance selling

You must provide certain information if you’re selling goods or services through digital TV, by mail order or by phone or text message.  This is called distance selling.

Distance sales which are normally treated as having a place of supply in the country of the recipient customer, will be treated as having a place of supply in the country of the supplier where the supplies do not exceed a new €10,000 calendar year threshold.

Conclusion

To sum up,  from 1st January 2021 the UK will have left the EU, and we will be a third country.  That is to say, doing business with any country will in principle be the same as now – dealing with non-countries.  There will be a lot of things to sort out.  From more paperwork, updating systems, checking cash flow, supply chains, commercial agreements, VAT, duties etc.

New systems and new ways of working can be quite daunting.

But, keep calm, plan, put together a flow chart of what goes on in your business. There is a useful checklist as  a starter for ten  government guidance (Brexit transition: time is running out).  Certainly, talk to your accounting team and try not to get overwhelmed.

Get in touch with us to see how we can help you and your business with life after Brexit and all your accounting and tax needs. For more business and finance , news, advice and tips, don’t forget to watch our weekly broadcasts, listen to our weekly podcast I Hate Numbers.

If you sell digital products and want to find out more about how EU VAT will affect your business, what to do, take out the stress then register for our webinar.  Making digital sales means you need to up your game when it comes to using the right systems and software.  Life is hard enough without obsessing over tax rules at home and abroad. An easy to use, intuitive helping hand can be found with Quaderno .  It calculate sales tax, VAT, and GST (Gross Sales Tax) for you. Quaderno, good not just for the EU and VAT, but for dealing with VAT and sales taxes throughout the rest of the world,

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