Brexit and global supply chains/practical implications of Brexit on 31 December 2020

The Brexit transitional period is still due to end on 31 December 2020. The final opportunity to extend the period under the current agreement will come in June, but the government has been clear that they have no intention of extending the transition and the trade negotiations have continued, albeit remotely, during the lockdown period.

The focus of government and business over the last few months has been on the challenges of addressing the Covid-19 pandemic, but as a relaxation of the lockdown begins to be considered, then the practical considerations related to the end of the Brexit transition begin to rise up the agenda. Businesses which trade in goods with the EU will need to reconsider the issues they addressed as part of no deal planning in 2019, but this time the outcome is more definite and time is short.

The current position is that there are two possible outcomes for trade in goods with the EU after 31 December 2020:

Free trade agreement

• If a free trade agreement is reached there will be no customs duty on goods arriving in the UK from the EU and goods arriving in the EU from the UK.
• If there is agreement on regulatory standards etc for products such as food and pharmaceuticals that there are no inspection requirements for goods crossing the EU/UK border.
• There will still be a new customs border between the UK and the EU which means that customs documentation will be required in the same way as for current non EU transactions. This will require the introduction of new documentation and processes and the capture of additional information (such as commodity codes and the origin of the goods) before the goods can be moved.
• Import VAT will be due on goods arriving in the UK, but HMRC have announced a change in the way import VAT is treated. Currently for non EU imports VAT needs to be paid or deferred before the goods can be released, but after 31 December 2020 postponed accounting will be introduced which will allow VAT registered businesses to account for import VAT and reclaim it on their next VAT return. This will apply to EU and non EU imports.

No trade agreement

• Customs duty on goods imported into the EU at their current duty rates. Although duty will often be paid by the customer, it will be an unexpected additional cost which may have commercial implications.
• Customs duty on some goods arriving in the UK from the EU – the UK has yet to publish its tariff for imports taking place after the end of the transitional period, but it is likely that there will  be positive duty rates on a number of items.
• There will be a new customs border between the UK and the EU which means that customs documentation will be required in the same way as for current non EU transactions. This will require the introduction of new documentation and processes and the capture of additional information (such as commodity codes and the origin of the goods) before the goods can be moved.
• Import VAT will be due on goods arriving in the UK, but HMRC have announced a change in the way import VAT is treated. Currently for non EU imports VAT needs to be paid or deferred before the goods can be released, but after 31 December 2020 postponed accounting will be introduced which will allow VAT registered businesses to account for import VAT and reclaim it on their next VAT return. This will apply to EU and non EU imports.