Rupert Moyle BA (Hons)
- Partner and Head of VAT and Duty
- +44 (0)330 124 1399
- Email Rupert[email protected]
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Last updated 5 January 2021
The UK left the European Union (EU) on 31 January 2020 and we have now passed the end of the transition period. There are new rules that businesses and people need to familiarise themselves with from 1 January 2021.
We have created a FAQ list which aims to help businesses with common queries. If you need any specific, tailored advice, please do get in touch.
2. Now a deal has been reached will customs declarations still be required?
Yes, these will be required as there is now a border between the UK and EU countries.
3. What practical indirect tax measures do businesses need to make now as a result of Brexit if they haven’t already?
Businesses need to understand the new rules of origin of the goods they ship as it is not a given that the preferential zero tariff will apply. They need to understand what additional costs they may be incurring, but the most important point is to understand the supply chain and the implications that this will have on their business in terms of logistics (how will goods be delivered/received) and VAT cost. If you are importing or exporting goods you will likely need to appoint a customs agent to handle customs declarations for you and if you are importing into the EU you may need to set up an establishment in the EU.
4. What are the key immediate impacts on businesses trading in goods with the EU?
Customs declarations will now be needed for the movement of goods and goods will now need to be cleared at Customs. Failure to understand the requirements may result in delays in the supply chain. Incoterms need to be reviewed to make sure it is clear who is paying import VAT. A business needs to understand if in fact its supplies of goods will be free of duty under the origin rules.
5. What are the key immediate impacts on businesses trading in services with the EU?
There are limited changes on the VAT aspects of the supply of services, particularly on a B2B basis. Some B2C services (professional type services) will become zero rated rather than subject to UK VAT.
6. Does a UK settled company need an EU EORI number or is a UK EORI number enough?
If you are responsible for the import of goods into the EU (DDP Incoterms) rather than the customer, which can include you moving goods into the EU to hold in store pending orders, then you will need an EU EORI and probably also a VAT registration where the goods arrive – a UK EORI will not be sufficient as it will not be recognised in the EU and will only clear exports and imports at UK Customs. You may also need an EORI for Northern Ireland.
7. How do you claim Outward Processing relief?
You will need to apply to be authorised to use it. If you use Outward Processing to have your goods processed or repaired overseas, you can claim full or partial relief from customs duty and import VAT on re-import into the UK. Similarly, if you are processing or repairing goods for an EU customer, Inward Processing will allow you not to account for import VAT and duty when the goods are temporarily imported into the UK.
To apply for Inward or Outward processing, you’ll need;
To apply for inward or outward processing authorisation you can do this online.
There are other reliefs that may be applicable to your business such as Temporary Admissions relief or Onward Supply relief, the latter meaning that specific consignments arriving in the EU may not be subject to import VAT if they are destined for onward transportation to a business customer in an EU country other than where the goods were imported.
8. As a non-EU country after 1st Jan the terms of trade for UK with other non-EU countries may change. How can we find out the status of negotiations with individual countries to determine things like duty rates, documentary requirements etc?
The UK has set its own UK Global Tariff for goods coming into the UK including preferential rates. Other countries have similar tariffs and details can be found on the World Trade Organisation website for any preferential deals agreed.
9. As our parent company and our Board are German and based in the EU, will there be extra problems for them or us after the deal is done? We import raw materials from (parent company) and are hopefully manufacturing for EU going forward.
Whether there is duty on movements of goods between the UK and EU, or vice versa, will depend on where the materials used in the manufacturing process are sourced. The rules of origin need to be understood if there are any non-EU products. The process for obtaining the preferential zero rate also needs to be understood. In any event, importing goods from Germany for processing and onward sale to the EU, or manufacturing in the UK for sale into the EU will lead to customs procedural issues for you, your parent and possibly your customers depending on the shipping terms. Shipments are also likely to attract VAT at import. Having a parent company in Germany doesn’t necessarily create additional issues though and it could help solve important ones, but it depends on the facts, the contracts with customers and what occurs in the UK.
10. Are you seeing any evidence of businesses cancelling or delaying plans to trade with the EU in the short term because of Brexit – perhaps waiting to see how things settle down before investing time and money trading overseas?
Yes, some have decided to wait and see what happens, taking a risk that their business can return to normal. But ‘normal’ will not happen in any event as they may not have appreciated that there is a customs border which will prevent goods from being exported and/or imported into the EU unless steps to manage the process, such as EORI numbers and clarifying how declarations can be made, have been taken. Delaying preparation will inevitably lead to problems with trading in goods.
11.Will the UK become less important when it comes to international trade as a result of Brexit? How will we maintain competitiveness?
No, I don’t believe that the UK will become less important when it comes to international trade as a result of Brexit. The UK has many natural attributes such as the English language, its geographic location and time-zone. In addition, it is generally administratively simple to do business in the UK and we have a world-renowned legal system.
From a tax perspective, the UK has an unrivalled double tax treaty network, a low corporate tax rate, a dividend exemption, no dividend withholding tax and the generous substantial shareholding exemption. This all means that the UK is also a very attractive holding company location. Further, there are lots of strong UK businesses looking to trade overseas!
The UK government recognises the importance of having an internationally competitive tax system and I believe will seek to ensure that this not only remains the case.
12. Can you please comment on importing/exporting SOFTWARE from Eastern Europe – is this a PRODUCT or a SERVICE, and how does this affect tax returns that need to be made?
If the software is standardised and available on the mass market on a disc or memory stick, purchased direct or from retailers then it will be a supply of goods (a product). These would be subject to import/export rules. Bespoke software designed specifically for a customer will be a supply of services. If the software is supplied electronically (downloaded), also a supply of services. If supplied on a B2C basis the Mini One Stop Shop (MOSS) may apply.
1. What are the top international tax considerations for businesses considering trading overseas? What should businesses do to prepare?
There are many considerations for businesses looking to trade overseas. Companies should not overlook the broader commercial considerations such as the importance of existing business relationships and networks, but tax is also a consideration. There are a few key aspects to consider:
There are often significant differences between operating as a subsidiary or a branch and the pros and cons of each should be carefully considered.
Care should always be taken to ensure that double taxation is avoided. Whilst double taxation is often mitigated through double taxation relief and double tax treaties, this is not always the case. The devil is always in the detail.
Whilst the UK has the most extensive network of double tax treaties in the world, withholding taxes on the payment of interest, dividends or royalties can have a significant impact on the cost of doing business in or with a certain jurisdiction. Such taxes are overlooked at your peril!
From experience, the most common scenarios where businesses encounter significant tax issues are where businesses have slowly and gradually morphed into overseas trade and new markets and taxing thresholds are breached. Often this can give rise to unanticipated permanent establishment, employee tax or VAT risks.
2. Are there any equivalents to EIS/SEIS in any EU countries, that would recommend selection of that country(s) for trading e.g. in software development, electronic system assembly, etc.?
Many countries across Europe have various incentives / tax benefits to encourage start-ups and associated financing, including Belgium, France, Germany, Ireland, Italy and Spain. Careful consideration should, however, be given to the commercial drivers for starting a business in a certain jurisdiction as well as both the short term and long term tax implications. Despite the UK leaving the EU, the EIS/SEIS schemes are very attractive and the UK remains a great place to do business.
3. What practical steps can businesses take to overcome the challenge of tax, VAT and duties when trading internationally? Where do they start?
The most important point is to understand the supply chain, Incoterms and the implications that this will have on your business in terms of logistics (how will goods be delivered/ received), customs and compliance obligations and cost (VAT and Duty). If you are importing or exporting goods you will likely need to appoint a customs agent to handle the declarations for you.
4. Do you think that Coronavirus will have long term impacts for international trade?
Yes. In many ways, Coronavirus has shone a light on some of the challenges associated with complicated international supply chains and have accelerated trends that already existed.
Even before Coronavirus we were seeing significant changes in international trade. Many companies were already critically assessing their supply chains and in particular shortening these and locating production closer to consumer markets. These trends were driven in part by consumer demand for quicker delivery of products etc. In addition, some of the economic efficiencies of the traditional model of locating production in South East Asia are not as obvious. Coronavirus will have set many of these changes in stone.
Of course, companies should consider the need to revisit their transfer pricing arrangements wherever there are significant changes to their supply chains and operating models.
5. What structure should we consider for our overseas operations?
The right solution will depend on your specific requirements and circumstances and would be advised on a case-by-case basis. It is important that commercial factors are also taken into consideration alongside any tax implications. There are often significant differences for tax purposes between operating as a subsidiary or a branch and hence assessing the pros and cons of each is often a good starting point.
There are lots of resources available for businesses looking to trade internationally. In particular, the Department for International Trade, UK Export Finance and the UK Chamber of Commerce can provide significant support. We would also urge businesses to discuss their plans with their professional advisers who already know and work with them. We are here to support and guide our clients through the challenges of Brexit and trading internationally.
How we can help?
Our team is well resourced and experienced in advising businesses and individuals on the implications of Brexit and trading internationally in general. We have a team of VAT and Duty, Tax, business and sector specialists that can guide you on the next steps. We also have close working relationships with law firms if you need any legal support.
If you need any support or guidance on Brexit related matters, please don’t hesitate to get in touch by calling 0330 124 1399 or completing our enquiry form and one of our experts will get back to you.
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