What is Brexit?
In a referendum on 23 June 2016, the UK electorate voted to leave the EU. The UK formally left the EU on 31 January 2020 (“exit day”) when the UK-EU withdrawal agreement came into force (the “UK-EU Withdrawal Agreement”).
This then triggered a post-Brexit transition period as UK and EU needed time to negotiate the ins & outs of the future arrangement, to avert a hard Brexit and to decide how the movement of goods, services, people and capital across the UK/EU borders will be processed.
The transition period ran from exit day until 31 December 2020.
The UK government originally intended the UK to leave the EU at 11.00 pm (UK time) on 29 March 2019, but on 22 March, 11 April and 29 October 2019, the European Council and the UK government reached legal agreements to extend the Article 50 period.
Key from a business perspective is that the UK was a member of the EU’s single market and customs union, which enables its member states to function as a single trading area with no tariffs or border checks, and with a combined VAT system.
For UK businesses, all these aspects of international trade changed to a greater or lesser degree following the end of the transition period.
What is the Brexit transition period? What happened during that time?
This is the period which ran from 31 January 2020 (exit day) until 31 December 2020.
Besides, the transition period, it is also referred to as the implementation period, the withdrawal period or a “standstill period”. Effectively, the transition period means everything continued as it ever did for UK citizens and businesses until 31 December 2020.
During the transition period:
the transitional arrangements in the UK-EU Withdrawal Agreement (which became UK law) governed the UK-EU relationship;
most EU law (including as amended or supplemented) continued to apply to the UK;
even though the UK continued to be treated for most purposes as if it were still an EU member state (e.g. a continued participation in the EU customs union and single market, and the continued application of the four freedoms) it did not have the rights of an EU member state to participate in the EU institutions, bodies, offices and agencies;
the UK remained bound by the obligations set in the EU’s international agreements; and last but not least;
the customary EU supervisory, judiciary and enforcement mechanisms continued to apply in relation to the UK, including the jurisdiction of the Court of Justice of the European Union (CJEU).
At 11pm on 31 December 2020, EU law ceased to apply in the UK following the end of the Brexit transition period. The trade deal concluded between the EU and the UK is set out in the EU-UK Trade and Cooperation Agreement. The end -result is a combination of some firm and provisional agreements, and months of further ongoing negotiations.
When does Brexit happen?
Brexit has already happened. The UK officially left the EU at 11pm (BST) on 31 January 2020 (“exit day”), but entered a transition period which finished on 31 December 2020, under the auspices of the UK-EU Withdrawal Agreement.
The end of the transition period was surprisingly low key to the extent that some have not yet realised the Brexit date has passed – perhaps because it has been on the agenda for so many years.
We have a Brexit deal of some sort after about nine months of negotiation. The last two points were around fish and fair competition and it was fish that delayed an announcement of the Brexit deal on Christmas Eve, 24th December 2020.
How does Brexit affect trade and how will Brexit affect my Business?
If we discount niche industries such as farming or medical research, the following areas of business had to be examined and potentially revised.
This is because the UK will no longer recognise institutions that oversee these areas, or will no longer be a part of the EU free trade area:
Import and export of goods to and from EU countries, including associated VAT payments, VAT refund claims and (potentially) custom and excise duties.
State aid, including grants and block exemptions.
Transport and logistics, including fulfilment.
Product safety or eco-compliance, including packaging and labelling that references EU licensing.
Copyright, trademarks and patents.
Environmental industrial standards, including emissions.
Transfer of personal data between the EU and UK.
Mutual recognition of qualifications and relevant licences (including audit, banking and insurance licences).
What is the effect of membership of the EU customs union and single market?
EU member states are:
Part of the EU customs union. This in effect means no tariffs on Member states goods and harmonised customs duties. This ensures a level playing field, no opportunity for “arbitrage, shopping around for a lower tariff by a third country trader.
Bound by the EU’s WTO schedules (in particular, GATT (The General Agreement on Tariffs and Trade) and GATS (The General Agreement on Trade in Services).
Part of the EU single market – which represents the “four freedoms” (free movement of goods, services, capital, and people). This means that goods produced in one member state can be sold across EU borders without the need for checks at borders as they meet a common EEA-wide standard applicable to all Members. The single market for goods is generally more integrated than it is for services.
Subject to enforcement powers of EU-wide regulatory authorities and the Court of Justice of the European Union (CJEU.
Party to an EU-wide regime of mutual recognition of professional qualifications and regulatory frameworks.
Currently party to 40 or so free trade agreements (FTAs) containing mutually preferential trading terms that the EU has concluded with some 70 countries.
What do Brexit business rules look like after the transition period?
Some of the major regulatory requirements and guidelines are available on UK government websites, many still in progress.
Many of these new rules and regulations apply just to England, Scotland, and Wales – that is, the countries within the island of Great Britain (GB). Because of its border with Ireland (and therefore the EU), the rules and regulations about trading between Northern Ireland, the EU and the rest of GB are different.
Importing good from the EU to GB:
Importing goods from EU countries will switch to being a similar process to importing goods currently from non-EU countries, though be weary of a different set of rules for goods sent by post.
To import goods, you will need: (1) an EORI number that starts with GB; (2) to declare goods when they enter GB via an entry summary declaration.
Since goods are eligible for customs duties and import VAT, your will need to check the rates of duty and import VAT that apply (including VAT on services). VAT payments can be postponed.
For the first six months following the end of the transition period (up to 30 June 2021), you can optionally make a supplementary declaration for imported goods from the EU.
Many businesses prefer to use a UK authorised third-party expert such as freight forwarding, customs agents or fast parcel operators to deal with the complexities of import and exports, who are capable to access bespoke CHIEF software.
VAT – postponement – import VAT, supply VAT:
If you import goods from anywhere outside GB and those goods are for use in your business, you can use postponed VAT accounting, i.e., do not pay import VAT at the port of entry into the UK, but declare in your VAT Return. The intention was to avoid reclaiming “port of entry” VAT later.
No authorisation from HMRC to use postponed VAT accounting is required, but please ensure that your EORI and VAT number are on the customs declarations.
Now, if goods imported are valued of less than £135, supply VAT rather than import VAT will be applied at point of sale by the seller.
If being sold to a consumer or non-VAT-registered business, the seller should charge UK VAT and will therefore need to have registered with HMRC and account for UK VAT.
If being sold to a VAT-registered business, then the UK VAT will be reverse charged to the customer.
Exporting goods from GB to the EU:
The rules are again similar to those used currently when exporting goods to non-EU countries. Make sure you have an EORI number beginning with GB.
As the UK is not in a custom union – be ready for the big change, submit customs declarations.
Some exported goods can get away with a full declaration, get authorisation from HMRC to use the simplified declaration procedure, register with the National Export System and use a pre-shipment advice declaration. Regardless, all custom export info needs to be submitted later.
You may need export licenses or certificates.
If you can, choose a UK-based freight forwarder, customs agent or fast parcel operator to ease the administrative requirements. The entry in declarant’s records procedure may be used too for certain goods.
VAT will be zero on most exports.
Exporting goods to non-EU countries from the UK:
Upon the end of the transition period, the UK will no longer be part of existing trade agreements between the EU and certain non-EU countries.
The government is hoping to put trade agreements in place. But until then the UK will export to non-EU countries using the World Trade Organisation (WTO) Most Favoured Nation (MFN) rules.
The list of countries this applies to currently includes the US, which is the UK’s largest trading partner.
This means you must use the US import and quota tariffs agreed under WTO rules, which can be viewed on the WTO Market Access Conditions (MAC) website.
The government has provided individual guidance for each country that will be updated as more information becomes available. Check each country’s agreement on product testing, certification and conformity.
Product certification and conformity marking:
If products you manufacture typically require certification, there are four sets of UK government guidance relating to where the products are manufactured and sold:
If goods you are selling require a CE Mark – they require a replacement the UKCA mark for products sold in England, Scotland, or Wales; and likely the UK(NI) or the CE mark (still unknown) if sold in Norther Ireland.
To help with a business transition, you can until 1 January 2022 place goods on the market in Scotland, England and Wales using the CE mark, provided they meet EU requirements (where these match UK requirements).
For goods sold in Northern Ireland, the rules are still being negotiated but it’s likely that goods will require either the UK(NI) or the CE mark.
Business travel to most EU countries following the end of the transition period
Existing passports can still be used, as long as you have at least 6 months left until expiry (not required for Ireland). This applies to existing burgundy-coloured UK passports that have EU markings.
Passports over 10 years old since the date of issue will need to be renewed even if they had ‘extra months’ added to the 10-year total following a previous renewal.
While private travel insurance is available regardless, state-provided travel/health insurance (EHIC) is till big unknown.
My business is based in the UK and only has UK customers. Will I be affected by Brexit?
There are virtually no businesses in the UK that will not be affected in some way, even small, through EU manufactured products or other EU piece in your supply chain.
Consider delays at ports for goods in customs clearance areas, extra costs involved with customs import duties, administrative burdens, such as seeking authorisations, engaging a third party agent or utilising an EORI number.
Line up any alternative local suppliers, warn your customers of any delays and if you need account for extra fees in your existing procedures.
hold data on EU citizens who are customers, or suppliers, in which case sharing it with suppliers or customers in the EU might not be permissible for some time until agreements are in place;
have a trademark that you wish to continue to protect outside the UK. If you’ve utilised an EU trademark (EUTM), you might need to register it afresh in whatever intellectual property protection mechanisms are put in place for UK businesses trading overseas;
hold personal data on EU citizens, or potentially even use a website that has an .EU domain, in which case you will no longer be able to use that domain unless your business has its principle place of business within the EU;
rely on EU citizens for staffing (a core team or maintenance, support); or
customers or business in your chain being serviced by EU business.
Will I still be able to employ EU citizens after Brexit?
Yes. Until 30 June 2021, you will need to continue to check the right to work status of any EU/EEA/Swiss job applicant in the same way as before Brexit/the end of the transition period.
As of 1 January 2021, EU citizens moving to the UK for work will need a visa. For this, a job offer from an approved employer sponsor will be required. Therefore, if your business recruits from the EU then you should apply to become an approved sponsor. The process can take up to 8 weeks.
Any of your existing employees who are EU (except Irish), EEA or Swiss citizens and are already in the UK have until 30 June 2021 to apply to the EU Settlement Scheme. They can be awarded by “settled” or “pre-settled” status, depending on the length of time they lived in the UK.
Can I have a quick Brexit impact assessment checklist?
This list is not exhaustive, but you may start with the following:
Employment and services
What your workforce looks like?
Do you employ any EU citizens, in the UK or in the EU, or do you plan to?
Does your business rely on any specialist or service located in the EU?
Do any of your staff need to travel to EU countries?
Does your business have any European trade union obligations?
Do any standards govern the work you do, such as European EN standards?
Import/export and logistics
Does your business import or export goods to or from the EU?
Do you use an agent or utilise license schemes?
Do you or any of your suppliers temporarily store goods in a warehouse based in the EU, even if they are manufactured elsewhere?
Taxes and money
Is your business VAT registered or do you operate under the MOSS agreement?
Does your business hold money in EU financial institutions, or use any other financial instrument located outside the UK?
Does your business rely on funding or grants that comes from the EU?
Does your business own any patents, trademarks or registered copyrights?
Does your company manufacture products that must certify to EU safety, security or ecological standards?
What data records, policies, notices and arrangements as to the processing of that data do you have in place?
Do you hold personal data about people based in the EU on UK servers?
Is any of your data hosted in an EU country (including cloud storage)?
Have you moved your business support functions such as billing, marketing, order processing, HR, payrolls, recruitment, contracts negotiations etc. from the UK to EU or vice versa?
Do you provide any services that are restricted to people holding a relevant qualification?
How do you export, import, dispatch goods or documentation to the EU?
Do you use postal or courier services?
How has Brexit affected GDPR?
The UK government adopted the GDPR into national law as part of the Data Protection Act 2018 and subsequently the Data Protection, Privacy and Electronic Communications (Amendments etc.) (EU Exit) Regulations 2019 (through which it has created the UK GDPR).
When the transition period ended on 31 December 2020, the same protections and requirements along with additional ones will apply in the EU and the UK. For examples, businesses will need to review and update their respective data registers, notices, policies, processes and agreements. In addition, businesses will also need to consider the data supervisory authorities that govern their practices (e.g., registering with the Information Commissioner’s Office in the UK and appointing a lead data protection supervisory authority in the EU).
As to data transfers from the UK to the EU or vice versa, businesses are currently permitted to do so as it is expected the UK will receive an “adequacy decision” from the EU shortly. However, in the event an “adequacy decision” is not received by June 2021, businesses will need to put in place appropriate safeguards, such as the standard contractual clauses, in order to ensure that data is lawfully transferred across borders.
Brexit FAQ Update by Beata Dunn, Partner at Aria Grace Law