When the Brexit deal was finally announced late on Christmas Eve 2020 I, at least, heaved a sigh of relief. At least the UK wouldn’t be crashing out of the EU without any deal at all. Whether it’s a good deal for both sides remains to be seen but today I’ll take a look in practical terms at what the Brexit agreement actually means for EU exporters. I’ll maybe look at the UK side in a separate post. Please let me know in the comments if this would be interesting for you. Today I’ll concentrate on the literal export: customs, transport and VAT.
Table of Contents
The UK is now a non-EU state
During December, I attended a series of webinars organised by the Austrian Federal Chamber of Commerce about Brexit. I was shocked to realise how many small EU exporters believed that if a deal was signed then “everything would be alright”. They believed that the “holy grail” of a deal would mean things stayed the same. Not at all! The deal agreed is a Free Trade Agreement such as the EU also has with countries like Canada, Vietnam or Japan. Nothing wrong with that, but not the same as being in the customs union. That means sending goods to the UK is now an export, not comparable with a domestic delivery. EU businesses have to apply customs, excise and VAT procedures to goods traded between the EU and the UK in the same way that already applies for goods exported to outside the EU. So what does that mean in detail?
Trade with physical goods
Most goods which are traded between the UK and the EU will not be affected by customs duties, tariffs or any kind of quotas. This means no additional taxes on your goods in UK retail. On the other hand, there is a whole raft of new regulations that exporters need to meet. This makes the hurdles to enter into the UK considerably higher for EU companies for the future. There are some separate regulations for Northern Ireland, that I won’t go into today in detail.
Customs and Tariffs
The administrative headache is real. The Brexit transition period is over and the UK left the internal market. The Free Trade Agreement (FTA) means that EU exporters not only have a whole new collection of acronyms, but also more customs administration than before. In the agreement the parties agree how this kind of bureaucracy should be minimised though. These international standards for FTAs hopefully mean we can expect some easing in the requirements as time goes on.
If your products don’t meet the qualifying requirements for EU origin, customs according to the UK Global Tariff apply.
Remember, you need to keep the records of how much you have declared to customs for 6-7 years, depending on your national regulations.
Rules of Origin
Potentially this will be one of the more complicated areas for exporters. The FTA regulates the requirements according to product type. Supply chains over the past 5 decades have often included components from both the UK and EU origin. This could mean that your product doesn’t have enough “EU inside” to qualify now for EU origin status. From now on companies will have to prove that their products qualify for customs-free status. There are limit values specified. It specifies which % of the value of a product can be of non-EU origin and still qualify for EU origin. Special limits are in place for industries such as automotive.
If in doubt, get advice from a specialist! Otherwise, customs mistakes can be expensive.
If your product contains raw materials from outside the EU you should check the new regulation to see if processing adds enough value to qualify for EU origin. For example, just adding a label to a tin of Chilean fish, doesn’t mean you can claim “made in EU”. But if you have 10% pineapple in a cereal bar that you plan to export, does that count as “made in the EU” or not?
What does this mean for EU exporters?
You should already have an EORI number? If not, take a look here
Make sure you know the international tariff number (HS classification) of your export products. That way you can check the rules about origin. The EU official website will guide you through the process.
You then can make a self “Statement of Origin”. For product values under €6000 this can be in the form of a declaration on the invoice. If the value is higher, you also need a REX (= registered exporter no.). You can apply for that here in case you don’t already have one for trading under other FTAs such as with Canada, Vietnam or Japan. An EORI number is a prerequisite to apply for REX status.
The REX system simplifies export formalities by allowing theEU REX Guidance Document
registered exporter to certify the preferential origin himself by
including a specific declaration (so-called statements on origin) on the
invoice or another commercial document identifying the exported
products. Thus, the registered exporter does not need to apply upon
each export for issue of a certificate of origin.
Certification of products
There is as yet no agreement in place for the mutual recognition of certifications. For EU exporters the UK authorities are responsible for checking compliance with the UK regulations. As time goes by and the product standards develop “away” from their present harmonised state, this could lead to de facto trade barriers.
The UK imports around 30% of their food requirements from the EU. The actual % varies according to the season though, being WAY higher in winter. In January, the UK imports between 85 – 90% of vegetables such as lettuce or tomatoes from the EU, and the situation is similar with fruits.
This makes agricultural products a critical part of the new FTA. Here, there are also no duties and no quotas, BUT there’s no agreement of equivalence about phyto-sanitary regulations. In practice that means that you will need health certificates to accompany exports and there will be controls at the borders. For the future, both the EU and the UK will have their own hygiene standards that you have to adhere to.
This impacts both companies and individuals
As an individual traveller (remember that?) this affects you too. Some British lorry drivers had their ham & cheese sandwiches confiscated at the border last week. I hope that this is just the Dutch authorities making the point that they now “can” do this and that it won’t become the norm. Yes, it used to be a bit like that in the past if you were bringing home cheese from France, but most people have forgotten how that was.
VAT requirements for B2B deliveries
Now that sending goods to the UK is no longer an inner-community delivery then VAT has to be considered. You are making an export out of the EU and an import into Great Britain (there are exceptions for Northern Ireland) so import taxes are due. Like other forms of VAT, the importer can reclaim this later as long as he registered for UK VAT. I’m not going to go into the details as that is too specific. It is however, pretty much the same procedure as for importing into other non-EU markets. You should note however that hefty excise duty is levied on both alcohol and tobacco products for the UK.
Uncertainty of any sort results in volatility, and Brexit will be no exception.Raghuram Rajan
Direct deliveries from the EU to Northern Ireland as an exception, will still be regulated (for VAT) like an inner-community delivery. Best to get specific advice from a tax specialist on this – just know, there are exceptions for Northern Ireland, also in some other clauses!
Level Playing Field
The FTA obliges both the EU and UK to maintain at least their present environmental, social, labour and tax transparency standards. This should ensure fair competition. It doesn’t mean though that the UK has to have the SAME standards as the EU in future.
State subsidies were a hot topic, again to try and ensure fairness for the future. The EU wanted to be sure that companies would not be disadvantaged and the UK wanted full sovereignty.
The FTA obliges both parties to ensure efficient management of cross border transport procedures. This should keep obstacles for truck drivers to a minimum.
For all the details about how the customs clearance procedure actually works at the border, you can refer to the Border Operating Model. There will be a step by step introduction over the coming 6 months.
Arbitration for Disagreements
Managing disagreements was a hot discussion. (The UK obviously felt that the European Courts wouldn’t be an objective location). Consequently, any disputes relating to the FTA, will be solved via an arbitration process.
EU citizens can travel to the UK for stays of up to 6 months without needing a visa. However there are exceptions to this (such as doing an internship, where you need a visa in future or skilled workers on secondment). For more information, check the UK government website for the most up to date info as I imagine that this could change a few times in the next 12 months.
Summary: how should EU exporters proceed post-Brexit?
How to complete the export formalities from the EU to the UK after Brexit:
- Make sure you have an EORI number and REX number
You can obtain an EORI number by registering with the customs authority in your country.
- Check for any restrictions on the export of your goods
eg regulations about alcohol or military items which may have changed
A comprehensive list of prohibited and restricted goods can be found in your national government / customs websites.
- Find out the commodity (HS classification) code of your goods
Commodity codes classify goods so you or your customs broker can fill in export declarations. If you are unsure about how to classify your products, your national Customs authority will have guides available online or you can ask a service provider for assistance.
- Make sure that your product satisfies the origin rules as set out in the Trade and Cooperation Agreement
See the links above
- Declaring your export to Customs
It is possible to make your own customs declarations, but the process is complicated and only suitable for more experienced exporters. Many businesses use a customs broker or agent to do this for them.
If you have decided to use a Customs Broker, you must, in a formal written authorisation, outline whether the broker is empowered to act as a ‘direct’ or ‘indirect’ representative.
It is important to note that export declarations must be pre-lodged at Customs. The Export Accompanying Document (EAD) issued by Customs needs to accompany the goods to the port where the goods are being presented to customs.
- The commercial invoice is needed to complete the customs declaration
The commercial invoice should contain the value of your goods – which is the price you’re selling them for. You may also require the freight costs or export insurance (which you may or may not have included in the selling price), depending on the terms of sale. It is important that the information provided on the commercial invoice is accurate. This invoice will be used to make an official customs declaration.
- Make sure an invoice copy accompanies the goods
The relevant documents must accompany the goods to the port of exit.
- The goods must be “presented” to customs
Notification of the arrival of goods at the required location for Customs control is referred to as ‘presentation of the goods to Customs’.
An authorised party will send notification of arrival to Customs (typically a port authority, the UK being an island). This lets Customs know that the goods are at a required location for Customs control (normally a port).
Customs will examine the ‘arrival message’ and determine whether the goods have permission-to-progress or need examination etc.
- Finalise the export entry on the national customs system
Once the means of transport upon which the goods were loaded has physically left the exporting territory, a departure message must be submitted to customs by the authorised vessel operator / airline.
I hope that these considerations about what the Brexit agreement means for EU exporters in concrete terms help you to have a clearer picture about the changes. I’m not a legal or tax specialist so please do consult a specialist about specific details of your individual circumstance, but I hope that this post gives you an idea of where to start looking for resources.
Please comment below, and let me know if you find this topic interesting and helpful for you.
If you need support with your UK exports, please contact me to see how I could potentially help you.