How the EU-UK Trade and Co-operation Agreement Affects Business

Andy Spencer
January 14, 2021

The EU-UK Trade and Co-operation Agreement (TCA) was finally agreed on 24 December 2020. A week before the end of the transition period. Fully implemented into UK law, but the TCA remains provisional. It needs to be ratified in the European Parliament. Therefore it applies on a provisional basis until 28 February 2021.

The TCA covers several areas in addition to trade between the EU and UK dealing with investment, competition, State aid, maintaining a level playing field, fisheries and data protection. It was some of these areas that proved to be the most difficult to resolve during the negotiations.

How is the TCA different to the Customs Union?

The TCA provides for trade in goods between the UK and the EU to be on a zero tariff, zero quota basis. However, only if the goods meet the appropriate rules of origin. This reflects the reality that the TCA is not a replacement for the Customs Union. The Customs Union meant that once goods were in free circulation in the EU, they could move from one Member State to another without further payment of customs duty.

The TCA is different, and the origin of the goods is key. There are specific rules on determining origin and a system of self-certification is in place. For example, if goods are of Chinese origin, they won’t be covered by the TCA. So would be subject to whatever rate of customs duty applies in the EU when exported from Great Britain to the EU. This is in addition to customs duty that would apply in the UK based on the UK Global Tariff unless there was the application of an appropriate suspensive relief on arrival into the UK.

Mutual Assistance Provisions

The TCA also covers mutual assistance around VAT. These mutual assistance provisions may have an impact on the requirement for UK companies to appoint a fiscal representative in those countries where it’s required. However, until Member States formally change their requirements, it’s important that businesses meet their legal obligations as they currently stand.

Failure to appoint a fiscal representative when required may result in penalties imposed for not trading compliantly. In some cases could interrupt commercial transactions to the detriment of both the company and its customers.

The mutual assistance provisions may also have an impact on the requirement for UK companies to appoint an intermediary for the purposes of the Import One Stop Shop (IOSS). IOSS is proposed for implementation on 1 July 2021. The EU has a mutual assistance agreement with Norway. This means that Norwegian companies don’t need to appoint an intermediary for the purposes of IOSS. It’s hoped that the EU will extend this to companies in Great Britain.

VAT Position of Trade Between UK and EU

The VAT position of trade between the UK and the EU was largely known before the TCA was signed and is therefore not significantly impacted by the TCA. It was the UK ceasing to be a Member State and leaving the EU VAT area which determined the changes.

As a result, many businesses were able to take proactive action rather than awaiting the finalisation of the TCA. If a business did not take action to ensure ongoing VAT compliance, it’s essential to take the appropriate steps now. Furthermore, if businesses had a Brexit action plan, it is imperative that it’s implemented fully to remove risk.

The presence of a Customs border between the UK and EU means that goods cannot flow freely as they did in the past. Taking the appropriate steps to allow the goods to move is not the end of the story. Ensuring VAT compliance once the goods have arrived in the EU is essential. As is recognising that not all Member States have the same requirements.

Take Action

All businesses should review their current trading arrangements. Business need to ensure they are compliant and also that they’re trading in the most efficient way.

Keen to know how Brexit 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.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

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.
Share this post

motor insurance taxation in Italy
EMEA IPT VAT & Fiscal Reporting
September 26, 2024
Taxation of Motor Insurance Policies: Italy

In Italy, the insurance premium tax (IPT) code (which is being revised as of the date of this blog’s publication) and various other laws and regulations include provisions for taxes/contributions on motor hull and motor liability insurance policies. This article covers all you need to know about this specific indirect tax in the country. As […]

IPT warranty services
EMEA IPT VAT & Fiscal Reporting
August 30, 2024
Applicability of IPT to Warranty Services

Italy: IPT Treatment on Used Vehicle Warranty Services On 21 May 2024, the Italian tax authority published a ruling (No. 110/2024) on the IPT treatment of warranty services provided in relation to the sale of used vehicles. The ruling dealt with a scenario in which a company (the ‘Applicant’) provided warranty services to dealers within […]

Hungary Supplemental Insurance Premium Tax
EMEA IPT
July 11, 2022
Extra Profit Tax: An Introduction to Hungary’s Supplemental Insurance Premium Tax

Update 7 October 2024 by Edit Buliczka Hungarian Tax Office Updates IPT Declaration Form for 2023 The procedure necessary to correct an underdeclared premium figure in Hungary can be complicated. The complexity of a correction for return form 2320 has become even more challenging. Following a Sovos query, the Hungarian Tax Office (HUTA) updated the […]

what is peppol
E-Invoicing Compliance EMEA North America
October 29, 2024
What it is PEPPOL?

Peppol E-invoicing explained: What it is and how it works The global adoption of electronic invoicing is accelerating. Governments worldwide are pushing to adopt e-invoicing to digitally transform their national systems and, often, to close the VAT gap. While many countries have introduced their own e-invoicing mandate to digitise fiscal controls, the requirements and systems […]

French tax authority cancels free invoice exchange
EMEA VAT & Fiscal Reporting
October 16, 2024
How Do Changes to the French e-Invoicing Mandate Impact My Business?

By Christiaan Van Der Valk  The French tax administration has just announced structural changes to the 2026 French e-invoicing mandate that will discontinue the development of the free state-operated invoice exchange service. This decision will put increased pressure on taxpayers and software vendors to select a certified ‘PDP’ to fill the void created by this […]

EMEA Tax Compliance
September 6, 2024
What is SAP Clean Core and What Does that Mean for Tax? Part I

What is SAP clean core? It’s about being cloud-compliant…are you? Find out benefits and implications in part one of Sovos’ five part series.