After years of debate, negotiations and delays, Brexit is here. While the UK officially left the EU in 2020, new rules and regulations officially came into effect governing trade between the UK and Europe from January 1st, 2021.
At over 1,200 pages, the trade agreement is not light reading. Still, if you’re a UK salesperson who sells into the EU, it’s essential that you’re up-to-date on the changes and how they affect you and your customers.
Although you may not be personally responsible for implementing business policy, you should be aware of the requirements, how they affect the sale of goods and services to Europe and be confident in answering any questions your customers might have.
While this article will give you an overview of the biggest changes resulting from Brexit, it is a complex subject. There are many other requirements that affect specific industries and it’s possible there’ll be more changes in the future. To make sure you’re completely up to date, always check the official government guidelines and use the Brexit checker for personalized guidance.
The key changes covered in this article
- Customs declarations and tariffs: The UK officially exited the EU Customs Union, so any goods sent to the EU will require customs declarations before leaving Great Britain. Certain items may also require duties or a special license.
- VAT rates and distance selling thresholds: Goods sold from the UK to the EU previously did not count as exports. Now, exported goods are zero-rated, whether you’re selling to the EU or anywhere else in the world.
- EORI numbers: Businesses selling physical goods will now need a 12-digit Economic Operator Registration Identification (EORI) number, which is used by the customs authorities to identify the exporter.
- Selling to or from Northern Ireland: Northern Ireland will still follow EU rules, even though they also will remain as part of the UK for VAT purposes.
- Selling services into the EU: You may now have to register for VAT in the ‘place of supply’ and charge and declare VAT at the rate set in your customer’s country.
- How does Brexit affect GDPR and data protection? GDPR still applies if your business handles any EU residents’ data, regardless of where your business is located.
- Updating your terms of trade: Both you and your customer need to have complete clarity on each party’s responsibilities when it comes to moving goods into the EU. One way of doing this is by using international commercial terms, also known as incoterms.
Customs declarations and tariffs
As part of Brexit, the UK officially exited the EU Customs Union. This Customs Union allowed goods to move freely within the EU as part of a single market, without requiring additional duties or checks. Now that the UK is no longer part of this system, any goods sent to the EU will require customs declarations before leaving Great Britain. Companies may choose to make the declaration themselves, or they may opt to hire someone else to deal with customs on their behalf.
Depending on the goods you sell, there might be duties due or other rules regarding its export, and certain items may also require a special license. For example, if you’re selling medical devices, you may need a Certificate of Free Sale (depending on the country you’re exporting to).
Other items that might need licenses or other specific requirements to export include:
- Animals and animal products
- Plants and plant products
- Drugs and medicines
- Ozone-depleting substances and F-gases
- Radioactive substances
- Artworks, antiques and culturally significant goods
- Goods that could be used for torture or capital punishment
- Firearms, ammunition and related equipment
- Military goods, services and technology
- Items that can have both civil and military uses
Your company will also need to use the right commodity code to classify the goods you're exporting.
- You now need to make customs declarations on goods sold to the EU, either on your own or by hiring someone to manage this process for you
- You may also need to pay duties on your exports and certain items may also require a special license
VAT rates and distance selling thresholds
Previously, goods sold from the UK to the EU did not count as exports. Now, whether you’re selling goods to the EU or anywhere else in the world, exported goods are zero-rated. That means UK VAT is not charged at the point of sale, but they will be subject to import VAT. So, for your EU customers, UK or EU VAT will have to be charged.
VAT prior to Brexit
Prior to Brexit, online sellers were able to take advantage of distance selling thresholds. As long as your sales were below the threshold of the country you’re importing to (the equivalent of €35k in most cases) then you just had to charge UK VAT, without having to register for VAT in that country.
VAT after Brexit
However, from 1st January 2021, the UK can no longer use distance selling thresholds, and goods are now subject to import VAT and customs duties. Just as with international exports before Brexit, exports to the EU are still zero-rated, but your customer could end up having to pay the import tax (a move that’s unlikely to go down well with your customer, especially if they aren’t expecting it).
How to manage the complexities regarding the new VAT rules
To avoid straining your customer relationships, your business could:
- Serve as the importer of record
- Enlist a freight company to act as the importer of record on your behalf in return for a fee
If you go with the first option, that means you will need to pay import tax, as well as be registered and pay VAT in the country you’re exporting to. This might seem like a lot of work but, if your company is exporting to several countries, then registering and holding stock in one EU country would allow you to sell on to other customers throughout the EU under the normal distance selling thresholds.
Alternatively, you could go with option two and pay a freight company to act as the importer of record on your behalf. While this might be the simplest option for many companies, it also means your company won’t be able to recover any VAT charged on the imports.
The new VAT e-commerce rules
It’s also worth noting that, after 1st July 2021, distance selling thresholds will be a thing of the past for all EU countries. The new VAT e-commerce package will mean that, rather than registering for VAT in multiple countries, e-commerce businesses can use the One Stop Shop (OSS) to charge the relevant VAT rates for where they sell goods and then declare that on their OSS returns.
UK sellers will also be able to take advantage of this, but only if they register as a non-union taxpayer in one of the EU member states, where they’d then have to submit tax returns along with their OSS returns.
The new VAT e-commerce rules will also significantly affect low-value consignments. The VAT exemption for goods valued at €22 or less will be abolished, and import declarations will be required for all goods entering the EU, whatever their value. However, goods valued at €150 or less will benefit from simplified customs declarations that require significantly less information (about a third of the data required for a standard customs declaration).
- Exported goods are now zero-rated. This means you can no longer charge UK VAT at the point of sale and instead the goods will be subject to import VAT and customs duties.
- To avoid passing on these import fees to your customers, you can do one of two things:
- Register and pay VAT in the country you’re exporting to and recover that import VAT when you file your VAT return
- Pay a freight company to act as the importer of record on your behalf, which removes the possibility to reclaiming the VAT
- E-commerce businesses can also use the One Stop Shop (OSS) to charge the relevant VAT and declare that on their returns.
Now that the UK is no longer part of the free trade area in the EU, businesses will need an Economic Operator Registration Identification (EORI) number. This is a 12-digit number with a two-letter prefix that identifies the country that issued the number and is used by the customs authorities to identify the exporter.
Do you need more than one EORI number?
Businesses may need more than one EORI. If your business is planning on sending goods out of the UK to an EU country, you’ll now need an EORI that starts with GB. If you’re also moving goods between Northern Ireland and the rest of the UK, you’ll need another EORI, this time starting with an XI.
If you’re acting as the importer of record and are planning to make declarations or get customs decisions in other EU countries, you’ll need yet another EORI number from the customs authority for that country.
What if you hire a third party to manage customs on your behalf?
Even if you appoint someone else, such as a freight company, to deal with customs on your behalf, they’ll still need your EORI number(s).
Note that only businesses sending physical goods, not services, require an EORI.
- Businesses selling physical goods now need an Economic Operator Registration Identification (EORI) number for identification purposes
- You may need more than one EORI number depending on which countries you are moving goods between
Selling to or from Northern Ireland
One of the main points that kept coming up in the Brexit negotiations was how best to handle trade with Northern Ireland.
Northern Ireland will still follow some EU rules
As part of the agreement, Northern Ireland will still follow EU rules, even though they also will remain as part of the UK for VAT purposes. For example, VAT is zero-rated for intra-community supplies moved across the Irish border.
Are there any exceptions to these rules?
One of the results of the agreement is that, if you’re sending goods from another UK country to Northern Ireland, you may have to pay duty unless the EU tariff is zero or you can prove that the goods are intended for sale to (or to ultimately be used by) UK consumers. If this is the case, you might be able to declare the goods as not ‘at risk’ of moving into the EU. Again, this only applies to the sale of goods, not services.
If your business is moving goods between Great Britain and Northern Ireland, consider signing up for the Trader Support Service. This free service will provide guidance on the changes and can be used to complete declarations on your behalf.
- Even though they will remain part of the UK, Northern Ireland will still follow some EU rules
- Depending on the country that you are selling goods to Northern Ireland from, you may need to pay duties unless you can declare the goods as not ‘ at risk’
- The free Trader Support Service is a great resource to find out more about these changes
Selling services into the EU
The sale of services has also changed as a result of Brexit, most significantly with regard to how VAT is charged.
How Brexit has affected selling digital services into the EU
While UK businesses supplying digital services were previously able to take advantage of the VAT Mini One Stop Shop (MOSS), you may now have to register for VAT in the ‘place of supply’ (i.e. the EU country your customer resides in). If that’s the case, your business will need to charge and declare VAT at the rate set in the customer’s country.
Is there a way to keep using the VAT MOSS system?
It is possible to carry on using the VAT MOSS system, but UK businesses will now have to register for the non-union scheme in an EU member state of their choice.
If you’re supplying financial services, the rules have also changed regarding VAT deductions, wherein input tax incurred after the transition period is now recoverable.
- If you were previously selling digital services and participating in the VAT Mini One Stop Shop (MOSS), you may now have to register for VAT in the EU country your customer resides in
- However, you can keep using VAT MOSS if you register for the non-union scheme in an EU member state of your choice
How does Brexit affect GDPR and data protection?
The General Data Protection Regulation (GDPR), which came into effect in 2018, governs how the personal data of EU residents is managed and processed. While the UK is no longer part of the EU—and therefore not subject to European law—GDPR still applies if your business handles any EU residents’ data, regardless of where your business is located.
In any event, the UK’s Data Protection Act 2018 (DPA 2018) has now incorporated the GDPR requirements, meaning UK businesses are still expected to meet the same high standards when handling data. As a UK-based data controller/processor, you may also need an EU representative, authorized in writing to represent you regarding GDPR matters.
- GDPR still applies exactly as it did before
- That said, you may need an EU representative regarding GDPR matters
Updating your terms of trade
Both you and your customer need to have complete clarity on each party’s responsibilities when it comes to moving goods into the EU. Before the sale is finalized, you should have in writing who will be dealing with the customs declarations and any necessary duties.
How to manage delivery responsibility
One way of preventing disagreements is using international commercial terms, also known as incoterms. As a globally recognized standard, incoterms are three-letter codes that clarify who is responsible for the key tasks in the delivery process. For example, DDP stands for Delivered Duty Paid and confirms that the seller is responsible for organizing and paying for delivery, including any necessary duty payments.
In addition to agreeing on the terms of delivery, you should also check that whoever you are sending the goods to is able to import them into their country. On top of the customs declarations already discussed, it’s possible you may need other documentation to get your goods into the destination country. Talk to your customer and find out exactly what information they require to import goods.
- Best practice is to now have in writing who (either you or your customer) will be dealing with the customs declarations and any necessary duties
- To help with this, you can use incoterms, a globally recognized standard, to define and clarify responsibilities
- Make sure to double-check that whoever you are sending the goods to is able to import them into their country, as you may need further documentation
If you’re selling from the UK to prospects and customers in the EU, then Brexit will mean big changes for the way you do business. As salespeople, it’s highly unlikely that you’ll be directly responsible for the adjustments your business makes as a result of Brexit. However, it’s essential that you’re aware of those changes and how they could potentially impact your customers.
Find out how your company is handling the new requirements. Are turnaround times likely to increase due to customs checks? Are there any additional fees that have to be paid? Is your customer aware of their obligations? By understanding these changes, you can keep your customer informed and answer whatever questions they might have regarding Brexit.
- EU-UK Trade and Cooperation Agreement
- GOV.UK official Brexit guidelines
- EU Customs Union
- GOV.UK customs declarations resource
- GOV.UK duties and customs procedures for exporting goods
- GOV.UK export goods from the UK checklist
- GOV.UK finding commodity codes guidance
- VAT for cross-border e-commerce guidance
- GOV.UK EORI number guidance
- GOV.UK Trader Support Service
- GOV.UK VAT rules for supplies of digital services to consumers
- Incoterms rules