Five things businesses need to consider about the EU-UK Trade and Cooperation Agreement

Andy Spencer
February 14, 2021

The UK entered into a new relationship with the EU on 1 January 2021. The Transition Period ended and the EU-UK Trade and Cooperation Agreement (TCA) came into force. The UK fully implemented this into law but applied on a provisional basis by the EU. The European Parliament needs to ratify it. This is due by 28 February 2021. However there is a potential to extend this deadline.

However, irrespective of the status of the TCA, there have been a number of changes which have affected how goods move between Great Britain and the EU. It’s important to distinguish between Great Britain and the UK. This is because of the Northern Ireland Protocol which means that EU VAT rules continue to apply in Northern Ireland.

Even businesses that have carefully prepared are finding it challenging to navigate the new system.

There are a number of key factors that need to be considered.

1. Make sure an appropriate Economic Operators Registration and Identification (EORI) number is in place

An EORI number is essential for communicating with the customs authorities. So it is a must have for importing or exporting goods from the EU. Also from GB and Northern Ireland. A GB EORI is required for importing and exporting from Great Britain with an XI EORI required for Northern Ireland. It is only possible to have a single EU EORI and as the XI EORI is treated as an EU EORI number, the authorities in some Member States are cancelling EORIs issued in their country.

2. Make sure a customs agent is in place

In both the EU and the UK, non-established businesses will need an indirect representative for customs purposes. There is a shortage and demand is high so it’s essential that appropriate arrangements are in place in advance of imports and exports taking place.

3. Determine if TCA or other Free Trade Agreement (FTA) applies

The TCA was heralded as the solution to all problems, but it only applies in specific circumstances and the origin of the goods is key. This is a new area for many businesses and the rules can be complex so need to be fully considered.

4. Determine rate of duty if TCA or FTA does not apply

If the TCA or another FTA does not apply, it will be necessary to determine the rate of duty that will apply. The EU continues to apply the Common Customs Tariff but the UK introduced a new Global Tariff which applies from 1 January 2021 that needs to be considered.

5. Determine how to account for import VAT

The UK introduced postponed import VAT accounting which allows accounting for import VAT on the VAT return. This is not compulsory but provides a valuable cashflow benefit if applied. It has to be claimed when the customs declaration is submitted so appropriate instructions will have to be given to whoever is submitting the declaration.

The position varies around the EU. Not all Member States are offering postponed accounting and where it is available, the conditions for its use vary. It’s therefore essential to consider this to maximise cashflow.

There are many challenges to trading between the EU and the UK and goods can no longer move freely as they need to clear customs. Planning is therefore essential to ensure that goods can reach their destination without delay and commercial relationships do not suffer. Once the goods have reached their destination, it is necessary to consider the subsequent VAT treatment which needs to be done on a country by country basis especially for B2B supplies as rules can vary.

Take action

Keen to know how Brexit and the EU-UK Trade Cooperation Agreement will impact your VAT compliance obligations? Download our Brexit and VAT whitepaper or watch our recent webinar Brexit and VAT: Protect your valuable supply chains and minimise costly disruptions to find out more

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Andy Spencer

Andy is a highly experienced indirect tax professional who has worked in VAT for over twenty five years. Andy joined Sovos in 2009 and has responsibility for the consulting and compliance teams. Within the consulting team, he is involved in delivering major international VAT projects for blue-chip clients, bringing expertise in both structural compliance and commercial efficiency. Andy specialises in providing clients with bespoke VAT reviews that help them develop into new territories with the appropriate controls in place to manage VAT effectively. Andy has developed expertise in international VAT throughout his career and has advised on a broad range of issues in many countries. Within the compliance team, Andy is responsible for the integrity and professionalism of Sovos’ compliance offering working with the team to ensure clients meet their compliance obligations around the EU and beyond. Andy began his career with HM Customs & Excise and before joining Sovos was VAT Director at Baker Tilly’s Southern UK operation, a Senior VAT Manager at KPMG for six years, and a Senior VAT Manager at Ernst & Young for seven.
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