What Does Brexit Mean for My UK Retail Business?
After 4 years of tough negotiations, lofty assurances, broken promises and the very real threat of no-deal, the UK and EU finally reached an agreement with 5 just days to go before the withdrawal period ended on the first of January. With the trade deal alone consisting of 1246 pages, you will be forgiven for not wanting to have to read the whole thing to find out what it means for your business. But not to worry, we've gone through the some of the legal jargon so that you don't have to. When importing and exporting to the EU you will need to be aware of new policies regarding customs formalities and taxes – here's a breakdown of the most important details.
Import Duties & Tariffs
It was with a sigh of relief that UK businesses and consumers greeted the news of a zero tariffs deal at the eleventh hour. In practice this means that, for companies importing goods produced in the EU, they will not be charged import duties as they would with products imported from non-EU countries like the US or China. This is particularly important to avoid price hikes and will mean that in general retail prices will remain at a similar level as they were prior to Brexit. However, it is important to note that EU suppliers will need to fill in a customs declaration, including a declaration of the origin of the goods being exported. If the goods were wholly or substantially produced outside of the EU (for example a fashion business that outsources its product fabrication to Asia) import tariffs will apply – it's recommended that you check with your suppliers with regards to the origin of their products prior to purchase so that you can check likely import duties and avoid unpleasant surprises. If you are importing the goods using your own logistics provider it will be your responsibility to complete the customs declaration, however you can also appoint an agent to deal with this on your behalf. While we all get used to these new rules, the UK government understands that there is likely to be some confusion in the first few months of transition, so they have implemented a grace period of 6 months (until 30 June 2021) allowing EU traders extra time to complete customs and origin declarations.
VAT on Imports
Goods sold to the UK from the EU are now considered international imports so VAT is not charged at origin, however you will be liable to pay VAT at the current UK rate. If the consignment is of a value under £135 it is the seller's responsibility to charge UK VAT at the time of purchase, and you can claim back as with purchases made in the UK. For goods valued over £135, there are some changes depending on whether your company is VAT registered or not:
For VAT registered companies: The good news for British businesses importing from the EU is that the British government has set up a postponed VAT accounting system. While UK VAT is now due on EU imports, businesses will be able to declare and reclaim VAT on the same tax return, effectively rendering the charge void. This new system will also apply for imports from non-EU countries so there will be less out-of-pocket expense for importing goods in general.
For non-VAT registered companies: You will still be liable for VAT at the UK rate (charged by customs), however you will not be able to claim this back from HMRC. If you want to benefit from the 0% tax on imported goods you do have the option to arrange for an agent to import goods on your behalf – the agent will be able to claim back for the VAT on the goods and you would simply be liable for any service fees the agent charges.
Exporting to the EU
For UK based businesses exporting to the EU, there will be more paperwork than before. You will need to have a valid EORI (Economic Operator Registration and Identification) number starting with the letters GB (for England, Wales & Scotland) or XI (for Northern Ireland) to show you are a recognised trader, whether or not you are VAT registered and independently of the quantity of goods you export. The good news is that if you already traded internationally to non-EU countries prior to Brexit you will already have one of these, but if it's new to you the process is simple - you will need to apply to HMRC online and it generally only takes a few working days to process the request.
Export Duties & Tariffs
When exporting goods you will also need to fill in a customs form for both B2B and B2C clients (CN22 for goods up to £270 or CN23 for goods over this amount), which will help the receiving customs authorities to calculate the correct tariffs and VAT where relevant. To avoid delays you'll also need to include the correct HS product code which you can find here – it's worth making a note of your most commonly used codes so that you don't have to check each time. As well as the customs declaration you'll also need to fill in a proof of origin declaration stating the origin of your merchandise. Only goods wholly or substantially produced in the UK or EU can benefit from the zero tariffs agreement, so if your source your products internationally it's important to make this clear to your customers at the time of purchase and let them know that they may be subject to customs fees in order to avoid complaints and unwanted returns. It is important to recognise that the declaration of origin is the sellers responsibility, and should match any labelling on the merchandise and/or its packaging. You can find out more information about how to fill out this declaration here. Even without customs duties or tariffs, EU customers may be subject to customs clearance/handling fees on receipt of their goods – it's a good idea to make sure your EU customers are aware of this so that they can check with their local authorities in order to know what to expect.
VAT on Exports
With Brexit, all shipments to EU companies are now considered exports, so VAT is not charged at the point of origin, but at the buyer's local VAT rate. If your company is VAT registered you will need to keep a retain the certificate of posting in order to support the zero-VAT rate in your tax returns.
Until 01/07/2021, local VAT will be charged at the point of entry by customs for all shipments except those with a value under €22 (which are currently VAT exempt). This “Low Value Consignment Relief” may be further extended, but the EU has yet to confirm this. There will, however be a major change from the beginning of July regarding shipments under the value of €150, as the vendor must charge the local tax at the point of sale. This means that UK brands will need to apply for an EU VAT number, charge the correct tax rate to each EU country, and declare tax to the relevant authorities within Europe at the end of each financial year. This is likely to cause headaches and extra costs for small businesses, however if you sell internationally via major e-commerce marketplaces like Amazon or Ebay, the marketplace will charge and declare the VAT for you – it is worth checking with these platforms to find out how they will handle the new regulations.
It's still early days and the agreement has not yet been officially signed off by the EU – it is currently “provisionally applied” to allow MEPs to study the terms before voting to make it law later in January. There will be a sharp learning curve for all involved, but there is at least light at the end of the tunnel and we can look forward to a future of trade with our closest partner.
TradeGala is an international hub connecting wholesale fashion brands and retailers throughout the world. We are proud to support our UK and EU brands and buyers navigate their way into a prosperous future of trade together
Written by Amber Domenech Patey