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Brexit Brexit - Need to know

Customs and VAT - what changes do businesses need to prepare for?

31 Oct 2019

airport sign customs and VATWhether the UK leaves the EU with or without a deal, there will be changes to current trading practices at the UK's borders – these will inevitably impact customs and VAT arrangements. 

On October 23 the IoD’s EU and Trade Policy Adviser, Claudia Catelin, sat down with independent expert on customs and trade Dr Anna Jerzewska, and Vice President of Global Indirect Tax at Avalara Richard Asquith. The below is a summary of the discussion that took place at the webinar.

Only about one in five of IoD members do not have any commercial links to the EU. These can exist in a number of forms, including:

  • the import and export of goods or services within the EU
  • employment of individuals within the EU 27 member states
  • a subsidiary in one of the member states
  • beneficiary of direct or indirect EU funding
  • part of a supply chain with UK companies that trade with the EU

Tariffs and rollover trade agreements

In the event of no-deal, the EU would apply third country tariffs to all goods from the UK imported into the bloc. 

The latest version of UK tariffs on imports are now published on the government’s website. 88% of these tariffs are set at zero.

The UK will be able to continue trading with some countries on a preferential basis under the current trade deals it has by virtue of its membership of the EU – for example, South Korea, Mexico and Switzerland. However, the details of how these continuing deals will operate are unclear as they’ve not been published yet.

Countries that have confirmed there won’t be a continuation of current trade deals are Canada and Japan. Our situation with Turkey remains problematic due to the fact it has partial inclusion within the customs union for goods with the EU.

Note: We don't know whether the no-deal tariffs that are currently published will apply after December 2020 or whether there will be a revised tariff regime brought in from that date.

Generalised System of Preferences (GSP)

The EU grants unilateral preferences to developing and least developed countries. The UK will also continue to grant these preferences. Businesses will still be subject to 0% custom duties on imports from developing countries.

Transitional Simplified Procedures (TSPs)

HMRC has introduced transitional simplified procedures to help businesses import goods from the EU.

In the event of no-deal, traders will only need to submit an EORI number and some other basic details before submitting the supplementary declaration at a later date.

Northern Ireland

It's uncertain how customs arrangements will work in practise as the negotiated Brexit deal means that Northern Ireland will potentially be in two different customs jurisdictions. In theory, a hard border will operate but it's unlikely that either Northern Ireland or the Republic of Ireland will want to put this infrastructure in place; however, the text of the protocol suggests there would be customs checks.

Note: A lot of the technical detail is to be discussed by a Joint Committee, which would start negotiating once the deal is in force during the transition period.

What can companies do to prepare in regards to customs?

  • apply for an EORI number.
  • check contracts to see what Incoterms are operating.
  • check entire imports and exports supply chain. (For example, companies could be potentially impacted if they have suppliers in the UK that receive goods from the EU).
  • speak to freight forwarder or customs broker to check what services they'll be able to provide post-Brexit.

EU VAT regime

As part of the EU, the UK is subject to the EU VAT regime along with the 27 other member states. Within this they are part of a set of harmonized rules that govern how each country taxes and where. Regardless of a deal or no-deal, the UK will leave the EU VAT regime. Over two million businesses look set to be affected from the offset.

VAT – who could be impacted?

  • Sellers of low sale volumes of B2C goods to EU27 consumers will have to VAT register in more countries or cease selling in those territories.
  • Sellers of goods to EU27 consumers and businesses will have to appoint fiscal representatives in most EU states.
  • UK companies without EU registrations will lose access to the online EU VAT recovery facility.

 Loss of VAT simplifications – whether we leave with or without a deal

Zero-rated movement of goods: under EU reforms, the UK will be exempt from this. However, there are limited VAT changes to services, which will remain zero rated through a scheme called reverse charge.

Tactics employed by EU to limit VAT friction

240,000 importers could have been subject to pay 20% imports on VAT. However, the UK has re-introduced postponed accounting – this means they won't have to pay the VAT to get their goods through customs clearance and into circulation in the UK. The total value of all imports and exports of goods need to be recorded excluding VAT. New VAT returns will reflect these changes.

Small e-commerce businesses that sell to Europe

Businesses who sell to consumers around Europe currently charge VAT that’s dependent on the country the customer lives in. Companies can still use their UK VAT number to charge 20% UK VAT. This is to ensure that small e-commerce businesses aren't burdened by EU VAT compliance as they get off the ground.

Loss of VAT distance selling thresholds

Unfortunately, this doesn’t take into account the loss of VAT distance selling thresholds, which could adversely impact small businesses. It’s estimated that 27,000 small businesses will have to VAT register in different countries at a cost of €5000 for each one.

 It is advised that businesses:

  • stop selling to countries where they’re not making enough revenue to swallow the extra costs of registering 
  • move their stock into the EU in a single location to avoid the loss of distance selling thresholds.

Appointing a VAT Fiscal representative

Businesses who already trade in goods or services inside the EU may need to appoint a fiscal representative inside each target country. This is to ensure that as a foreign trader they’re properly registered with the local tax office and fully compliant with rules on invoicing, VAT and exchange rates. This is a legal requirement in 19 of the 27 member states and could also pose an extra expense for small businesses and make trade in a particular territory not worth their while. 


If you trade in more than four countries consider setting up a local EU subsidiary. Ireland is a popular choice due to the lack of language barriers and the established VAT regime.


Businesses will also lose the VAT Mini One Stop Shop scheme (VAT MOSS) under the EU VAT regime. This enabled businesses that sell to consumers around the EU to put all their transactions into one single VAT return for HMRC to distribute to different tax authorities.

VAT reclaim – expenses

Currently, businesses can claim expenses if they travel across the EU for business purposes, through an online portal where HMRC deals with reclaims electronically. Once the UK leaves the EU VAT regime, businesses will return to a paper-based system, where they’ll need to collect up invoices and fill in a form for each individual country’s tax authority.

Northern Ireland

It’s likely that the country will stay inside the EU VAT regime and be able to take advantage of some of the reduced VAT rates that the Republic of Ireland has, under the EU VAT directive.

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