The United Kingdom formally left the European Union on January 31, 2020. The decision to leave the EU means significant changes in the way the UK does international business, including ecommerce. The UK will no longer be part of the Single Market nor of the Customs Union, which means all imports and exports will be subject to border checks, duties and tariffs. The UK will also no longer benefit from international trade agreements it signed up to as a member of the EU.
To give business more time to prepare, the UK and the EU agreed to defer the implementation of these changes until January 1 2021. This is known as the transition period, during which trade between the UK and EU has continued without any extra charges or customs checks.
The transition period also provided more time to reach agreement on the terms of a new relationship between the UK and the EU, including a free trade agreement.
Trade under WTO rules
However, negotiations between the two sides have yet to deliver an agreement and hopes of a breakthrough are receding. If no agreement is reached, all trade between the UK and the EU will take place under the rules of the World Trade Organization. This means that most UK goods would be subject to tariffs until a free trade deal is ready to be brought in.
Preparing for No Deal
Although talks continue, the UK Government has advised all businesses to prepare for No Deal. The impact of No Deal on ecommerce will be significant. Brexit will affect many aspects of cross-border trade, including buying and importing goods, holding stock and managing costs.
The purpose of this article is to guide you through the many changes and help you be ready for the challenges of Brexit as well as identifying opportunities. It will also signpost you to reliable sources of advice as negotiations between the UK and the EU enter the final stages before January 1, 2021.
Key changes happening on January 1, 2021: Customs, VAT and Tariffs
From January 1, 2021 there will be a customs border between the UK and the EU. Sellers will no longer be able to freely ship products from the UK to any member country of the EU. The same customs and excise rules for goods moving between the UK and the non-EU countries will apply to goods moving between the UK and countries in the EU.
You will need to supply a customs declaration with the following information:
- A VAT number for the country where you are storing the product.
- An Economic Operators Registration and Identification number (EORI) for the UK and any EU country you will be shipping goods to and from.
- This will be used on customs declarations by freight forwarders and couriers.
- Contracts and International Terms and Conditions of Service (Incoterms) must be amended to reflect that your business is now an exporter.
- Country of Origin information.
- Harmonised Systems Codes to determine the level of duty and import VAT on your products.
- Licenses and certifications.
The UK Government’s Border Operating Model includes details of the processes and systems, across all government departments, that will be used at the borders from January.
The EU has said it will not replicate the UK’s phased plan, so declarations will be needed for exports from January 1, 2021.
Exporters can also use the new ‘Check duties and customs procedures for export goods’ tool on gov.uk to identify what additional paperwork, tariffs and quotas are applicable
VAT will be levied on consignments of EU goods exceeding $181 in value following the same rates and structures as are applied for the Rest of the World imports. VAT-registered importers will be able to use postponed VAT accounting and different rules will apply to consignments valued less than $181.
Postponed accounting will need to be introduced for import VAT on goods brought into the UK. UK VAT- registered businesses importing goods to the UK will be able to account for import VAT on their VAT return, rather than paying import VAT on, or soon after, the time that the goods arrive at the UK border.
Low Value Consignment Relief (LVCR) will no longer apply to any parcels arriving in the UK. This means that all goods entering the UK as parcels sent by overseas businesses will be liable for VAT. Overseas businesses will charge VAT at the point of purchase and will be expected to register with an HM Revenue & Customs (HMRC) digital service and account for VAT due.
VAT registered UK businesses will continue to be able to zero-rate sales of goods exported to the EU but will not be required to complete EU sales lists. EU member states will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries. Associated import VAT and customs duties would be due when the goods arrive into the EU.
The UK Government says that about 60 percent of imports will be tariff free. These tariffs could change as the UK agrees new trade deals with more countries over time.
Duty will need to be paid on the basis of the origin, classification and customs value of the imported goods.
Be aware that the published tariffs do not include other import duties, such as VAT. Some products may also be subject to what are known as trade remedy measures, sometimes applied when trade disputes arise between countries.
You can check if tariffs will apply to your imports using the UK Global Tariff Tool.
Declarations can be deferred for up to six months for all imports of standard goods from the EU until July 2021, and will be introduced earlier in January for controlled goods such as alcohol and tobacco.
Get ready for Brexit
There is still considerable uncertainty around the future trading relationship between the UK and the EU. However, there are steps Sellers can take now to be able to reach their customers after January 1, 2021:
Key actions to take
- Deliver stock directly to the EU: Arrange for a percentage of your inventory to be delivered directly to fulfillment centres around Europe.
- Find alternative providers: Shop around for suppliers better placed to meet your requirements after Brexit.
- Introduce your new shipment model: Don’t wait until January 1. New customs requirements are likely to cause heavy delays. Instead of waiting to see what happens, act now.
- Set up warehouses closer to customers: If you ship a high proportion of products to one particular destination, it makes sense to invest in facilities there.
- Update your policies: Revise your own shipping policies and tariffs to reflect the Brexit changes as soon as details are finalised.
- Explore new markets: After Brexit, it makes sense to seek business opportunities outside the EU.
- Use a shipping aggregator: Aggregators are digital platforms that offer an umbrella of domestic and international shipping services, with discounted deals without any upfront costs.
Put your customers first
- Keep currency options open so customers can choose to pay in their own currency if possible
- Offer different delivery options and be transparent about the potential of longer shipping times
- Optimise your processes for customer transitions and make it as easy as possible for them to buy from you
- Ensure you have customer service processes in place to answer queries as quickly as possible