shaw gibbs - accountants and business advisers
accountants & business advisers

Have a question? Like to know more? - Contact us or Call +44-1865 292200 or +44-20 7436 4773, Mon-Fri 8:15am - 5:15pm

*Initial meeting is free of charge

To latest news
The Brexit trade deal explained - news article image

The Brexit trade deal explained

3 Feb 2021

7 minute read

As the timing of the Brexit deal took place in late December 2020, this meant that many organisations were left with minimal time to understand the various implications on their activities before it took effect.

With this in mind, I have summarised the key points for organisations trading in goods and services as per the recent UK and EU agreed trade deal. 

Organisations involved in trading of goods:

When the trade deal between the EU and the UK was announced there was emphasis on the fact that there will be zero tariffs and no quotas applied on any trade which takes place between those nations. 

While it’s true that there are no tariffs on trade between the UK and EU, organisations should note that such free trade arrangements only apply where the goods originate in those locations i.e. within the UK or EU. Goods which originate from elsewhere may not fall within the parameters of the trade deal, which means that organisations are potentially subject to positive rate of duties being applied upon importation.

As ‘Rules of origin’ is a complex area we would recommend professional advice is sought when assessing the ‘origin’ of goods, especially if the goods involved have come through various stages of manufacture in different countries.

UK and EU organisations can benefit from zero tariffs by stating correct commodity codes for their goods on custom declaration forms, as well as to understand the specific origin rule which applies for each commodity code. Where businesses trade in significant volumes it is advisable in obtaining ‘AEO’ which means that custom procedures are simplified which would save time and money to many businesses.

A myth of the trade negotiations was that such ‘a deal’ would result in frictionless trade taking place - like how things were pre-Brexit. This has turned out to be untrue as many organisations now have to submit import and export declarations when goods cross the UK/EU border which they didn’t have to previously. This has resulted in increasing admin costs and time delays for many UK and EU businesses which has meant that many organisations are shunning growth opportunities which were previously achievable.

Given the trade complexities now, we would recommend obtaining assistance from an intermediary such as a customs agent who can navigate you through the relevant paperwork needed which ultimately saves time and costs.

The Northern Ireland Protocol has now taken effect. This effectively means that Northern Ireland (NI) will still be treated as remaining in the EU for trade with the EU, but as part of the UK for trade within the rest of the UK.

Organisations that are affected by ‘The Northern Ireland Protocol’ should review what additional administrative or VAT requirements now exist including obtaining EORI (import ID) numbers for import/export transactions.

For businesses trading in goods who act as the ‘importer on record’ within the destination country the goods are sent are now likely to need to VAT register in that country as many EU VAT simplification measures have now been removed for UK businesses including ‘Triangulation’ and call-off stock arrangements. We again recommend professional advice to be sought where such supplies take place as to avoid any further potential issues with other tax authorities which may result in penalties.

HMRC have announced that from 1 January 2021, non-UK based businesses who are involved in the selling of goods to non-VAT registered consumers of low value items (i.e. up to £135) via an online market place (OMP) into the UK must now VAT register and charge VAT at the relevant UK rates applicable. It must also be noted, that UK VAT must be charged at the point of sale and then the non-UK business must account for the VAT using the normal UK VAT return procedures. However, whereby such goods are sold via an OMP such as Amazon, Ebay etc. instead of a business’s own website, it is the OMP that would account for VAT at the point of sale and not the overseas supplier saving the overseas supplier the need to VAT register within the UK. 

Supplying services to international customers

The good news is that most of the UK's VAT rules applicable to business-to-business (B2B) supplies pre 1 January 2021 will still remain. This means that organisations should continue to use the place of supply provisions (rules that determine the country in which VAT is to be paid) or rates of VAT as previous. 

It is in relation to business-to-consumer (B2C) supplies where there are potential issues which organisations must come to terms with. As there are multiple place of supply rules for supplies to consumers it is important to work from the notion that where a business makes such supplies the VAT is usually due within the country where the supplier is located. Where organisations supply the following B2C cultural, artistic, sporting, scientific, educational or entertainment services, the place of supply for VAT purposes changes and the VAT is actually due where these services have been performed. This therefore means that as previous UK based organisations may be required to VAT register within the country where the services were performed. 

UK businesses who make supplies of insurance and financial services, there is some good news. The input VAT deduction rules have now changed. This means that supplies such as insurance or finance which were previously seen as VAT exempt will now be deemed as outside the scope and therefore will allow greater VAT recovery than present. This thereby aligns with the existing rules for supplies of such services to customers outside the EU. 

Currently supplying B2C digital services

 Any UK established supplier of digital services to non-VAT registered customers in the EU now has two options to declare all the EU sales, and the VAT thereon:

1. Register in a single EU Member State and use the non-union Mini One-Stop Shop (MOSS). Or 

2. Register in every EU Member State where your customers are established.

For EU businesses previously selling digital services into both the UK and the EU, you will still be able to use the MOSS scheme for EU supplies, however, for UK supplies the EU business is now required to VAT register in the UK and declare all such sales to HMRC.

Administration changes 

  • Businesses based within Great Britain (England, Scotland and Wales) no longer have a legal requirement to file EC Sales Lists. However, as per the withdrawal agreement any business based in Northern Ireland trading with the EU will still be required to file EC Sales Lists.
  • Professional service firms including accountants, legal firms etc. will no longer have to charge UK VAT on their supply of services to EU private individuals. This brings the treatment in line with pre-Brexit supplies to Rest of World private individual clients.
  • No longer require a customer’s EU VAT registration number to benefit from UK VAT free treatment. There is also no legal requirement to state on the invoice any reference to ‘The Reverse Charge’, however, for good governance we would recommend UK businesses to continue with this wording. 
  • There is still a requirement for UK firms who purchase services from overseas suppliers to apply the VAT reverse charge as previous. 
  • Businesses involved in the importation of goods into the UK will now require an EORI number issued by HMRC which effectively acts as an import ID number. Without an EORI number a business will face customs delays and potentially have issues reclaiming any import VAT incurred.
  • New postponed import VAT accounting measures have been introduced allowing an organisation to defer paying the import VAT until its VAT return filing. Import VAT in most instances is no longer payable at the UK border. As most organisations will most likely also be able to reclaim the VAT in full, this results in a cash neutral entry on the VAT return.
  • As the UK is no longer part of the EU single market, there are changes concerning UK organisations wanting to reclaim EU VAT in countries where they are not required to be VAT registered. Pre-Brexit, such claims were made under a common EU VAT reclaim process known as the 8th Directive VAT refund scheme. From 1 January 2021 such reclaims are still possible, but the claim for refund must be made directly to the authorities of the country concerned known as the 13th Directive VAT refund scheme. The 13th Directive VAT refund scheme has different time limits of when claims can be made and different procedural requirements. 


The Brexit trade deal explained - news article image


Asim Khan

For more info contact us:

01865 292 200

020 7436 4773

© 2021 Shaw Gibbs Ltd

Your registration