A new trade dynamic
On January 1, 2021, the terms of trade between the United Kingdom and the European Union were altered under the EU-UK Trade and Cooperation Agreement or TCA, a free trade deal that would eliminate tariffs on the vast majority of goods traded across the English Channel. The TCA was signed at the end of an 11-month transition period, which saw intense negotiations between London and Brussels.
Under the TCA, goods moving between Great Britain (but not Northern Ireland) and the EU will be mostly exempt from the imposition of tariffs, but will still be subject to Value-Added Taxes (VAT). In addition, controlled goods such as food, chemicals, pharmaceuticals, etc. must meet the new and distinct regulatory requirements of the EU and UK. While in many cases the UK and EU have found ways to harmonize regulatory requirements across their jurisdictions, there is often disparity.
New and complex customs requirements
For generations, businesses trading between the EU and UK have not had to concern themselves with customs administration as the two entities were part of a customs union. With the UK no longer part of the EU, a bevy of new customs requirements have come into force.
Traders in the UK (with the exception of those in Northern Ireland) will now be required to submit customs paperwork for goods moving between the UK and the EU. This highly prescribed documentation is mandatory for all import transactions. In addition, businesses looking to avoid paying tariffs under the TCA must be able to verify that goods entering the UK adhere to the Rules of Origin requirements set out by the trade deal. Failure to provide the requisite information on request or misrepresentation of information on the documentation could result in retroactive duties and/or penalties.
Northern Ireland Protocol (NIP)
As part of the Brexit Withdrawal Agreement that went into effect on February 1, 2020, the UK province of Northern Ireland will maintain a separate customs regime from the rest of the UK. Known as the Northern Ireland Protocol (NIP), the provision is an effort to maintain a soft border between the Republic of Ireland and the British province of Northern Ireland and preserve the integrity of the 1998 Good Friday Agreement. Under the NIP, no customs checks will take place at the Irish border. Instead, customs checks for goods entering and exiting Northern Ireland will take place at the Irish Sea.
Once goods from Great Britain that are destined for Northern Ireland arrive at customs checkpoints, they will be subject to EU customs regulations (not UK customs regulations), including standards for EU controlled goods. No VAT will be applied to goods entering Northern Ireland from either Great Britain or the Republic of Ireland. This is to ensure a levelled playing field between Ireland and Northern Ireland.
Similarly, controlled goods entering Great Britain from across the Irish Sea must adhere to British regulatory requirements. Goods entering Great Britain that originate in the Republic of Ireland will be subject to duties (if applicable), as well as VAT. Goods that originate in Northern Ireland will be subject to neither duties nor VAT, but controlled goods will be required to adhere to British regulatory standards.
Relieving the administrative burden
The government of the United Kingdom has implemented a series of measures designed to relieve the burden of customs administration in the near term. These measures allow businesses trading goods between the EU and UK to defer the submission of complete customs declarations to June 30, 2021. The payment of VAT has now been aligned with that of a trader’s scheduled input/output VAT return rather than being payable at the time of import.
However, in order to take advantage of these measures, businesses must have in place a system of capturing customs data in their own records, known as Entry in Declarants’ Records (EIDR), or submit simplified customs declarations at the time of entry through a designated electronic system. Businesses can choose to acquire the authorization and set up the system within their own enterprise or make use of the authorization and systems of a customs broker instead.
For more information on measures to reduce the impact and cost of customs protocols to your business, please refer to our article on relieving the Brexit Burden.
Businesses looking to take advantage of preferential duty through the TCA when importing goods into the UK, or exporting goods out of it, will be required to prove the goods they are trading meet the regional-value-content requirements (RVC) of the trade agreement. This requires businesses to ensure their goods are classified under the appropriate UK Global Tariff (UKGT) HS codes and accurately valued within the TCA trade regime. Given the volume and specificity of HS codes, this is often difficult for most businesses to manage on their own, particularly since the Rules of Origin governing content requirements are subject to change periodically.
Future of the EU-UK TCA
While the British government has ratified the trade deal signed between London and Brussels, the TCA is still being applied on a provisional basis only as the European Commission and the legislative bodies of the EU’s 27 member states still must ratify the agreement unanimously. In the event there is a rejection of the agreement by either the EU Commission or one of the member states, the terms of the agreement will either have to be renegotiated, or the agreement will be discontinued at a mutually agreeable time and duties imposed.
Supporting our customers’ needs
Contact Livingston today to learn more about how Brexit might affect your international supply chain and/or how you can mitigate disruption to it, or visit our Brexit Services page to learn how we can support you through the transition.
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