With many businesses forced to pivot or pause operations due to Covid-19, there is growing concern that some may have taken their eye off the ball when it comes to planning for Brexit.
For those involved in cross-border trading, it is important to get these preparations back on track.
The Border Delivery Group recently released a new Border Operating Model, which will come into force on 1 January 2021 and follows some £705m investment in jobs and infrastructure, including the new Goods Vehicle Movement Service (GVMS) and Smart Border technology. From this date, the UK will operate a full external border and the movement of goods between the UK and the EU will be subject to new controls. It does not cover Northern Ireland, which is subject to the Northern Ireland Protocol.
With many supply chains still facing some disruption due to the Covid-19 pandemic, the decision to phase in the introduction of the new Border Operating Model in three stages, between 1 January and 1 July 2021, has been widely welcomed. Among the main changes, from 1 January 2021, all businesses importing standard goods will need to meet basic customs requirements, such as record keeping and consider how VAT on imported goods is accounted for and paid. Customs declarations must be made within six months and businesses can defer the payment of tariffs to the date of submission. UK Safety and Security declarations for imported goods will not be required for the first six months. Export declarations and UK exit Safety and Security declarations will be required from 1 January 2021.
From April 2021, all products of animal origin and all regulated plants and plant products will require pre-notification and the relevant health documentation, although physical checks will not take place before 1 July 2021. From July onwards, businesses importing goods to the UK will have to complete a full customs declaration and pay the required tariffs. Full Safety and Security declarations will also be required from this date, and physical checks for animals, plants and their associated products will take place at Border Control Posts.
The detail of the Border Operating Model highlights a ‘core’ set of requirements that will apply to all goods transiting a UK/EU border, with additional requirements for specific goods, such as food and drink. Among the core requirements, all importers and exporters will be required to complete customs declarations. Customs duties and VAT will also be payable on all goods imported from the EU, although there are some options to defer these payments which should be fully explored.
With so much change on the way, manufacturers and other businesses that rely on the cross border movement of goods between the UK and EU should perform a thorough impact assessment of their supply chains. This will allow them to identify any gaps in resources which may need to be addressed. Contracts should also be closely examined, taking account of their incoterms, to establish where risk and responsibilities lie within the supply chain. Taking advantage of opportunities to defer tax and duty payments, such as the new Postponed VAT Accounting, could also help to alleviate pressure on cash flow at a critical time.
As part of their preparations for the new border operating controls, businesses should do the following:
1. Get a UK Economic Operator Registration and Identification (EORI) number – this is a requirement for all businesses wishing to move goods across UK-EU borders from the end of the Brexit transition period, including those deferring import declarations.
2. Appoint a customs intermediary – so-called customs agents, such as fast parcel operators, freight forwarders and brokers, can support businesses with the completion and submission of declarations. There is also a grant scheme available to assist businesses in funding this support.
3. Defer payments where you can – take advantage of options to defer payments of duty and tax where you can. This will help to spread the cost of compliance by enabling businesses to pay customs charges including customs duty, excise duty and import VAT on a monthly basis.
4. Prepare to pay or account for VAT on imported goods – VAT registered importers should consider making use of the new Postponed VAT accounting facility from 1 January 2021.
5. Check supply chain documentation – logistics solutions providers need to ensure their drivers have the correct documentation, for example, an International Driving Permit (IDP) or an additional licence may be required to drive in some countries.
6. Check compliance across the supply chain – the rules vary according to the nature of goods a business is importing, so commodity codes should be considered carefully. Other specific requirements may apply in certain circumstances, such as the need to appoint a registered consignor.
7. Review commercial arrangements – all existing commercial contracts should be reviewed closely to ensure the default legal responsibilities are evenly shared, without disadvantaging any individual party. For international transactions, this should involve a close review of the incoterms rules.
☛ Sophie Said is a director and Sean Turner is a VAT specialist at accountancy firm Menzies LLP.