Trade deal means tariff-free trade, but leaves plenty of work to do

From tariffs to qualifications through to extra form-filling: here’s an explainer for the post-Brexit deal and how it will affect the world of accountancy.

The historic post-Brexit deal finalised by the UK and EU on Christmas Eve – and ratified on New Year’s Eve – came just in the nick of time.

The UK has a deal that, at first glance, seems better than many expected, particularly its guarantee of a “zero tariff and zero quota” trade on goods, which has avoided a big shock to the economy.

But a deep-dive into the 1,246-page treaty soon reveals the deal’s flaws too. In particular, the agreement has been rebuked for neglecting Britain’s services sector, which constitutes 80% of the economy. Meanwhile, with companies having to complete an estimated 200 million new customs form, it’s predicted that businesses could face a mountain of red-tape too.

Here’s what you need to know about the changes that will impact accountants.

Trade and tariffs  

The big story from the trade agreement is its declaration that there will be no tariffs on goods transited between the UK and EU, and no limit on the quantity of goods that can be traded.

This has been hailed as a huge win for the UK as it means both sides can continue trading in a similar way to how they did before. It’s also avoided the 10% tariffs of a no-deal, which would have been economically disastrous for the UK.

A tariff and quota-free deal is particularly good news for British manufacturers that import/export materials from the EU, such as the UK’s automotive sector, which sources many of its parts from the bloc.

One of the biggest stumbling-blocks in the negotiations was the EU’s insistence on “dynamic realignment”, so that the UK wouldn’t attempt to undercut EU firms by doling out unfair state subsidies to British businesses.

The post-Brexit deal also saw both sides agree on a ‘level playing field’, which means they must not lower their standards to undermine each other by engaging in anti-competitive trade, and be transparent about subsidies. Tariffs could be imposed in the future if the UK deviates from these standards.

It’s worth nothing thatthe quota-free deal only covers ‘originating goods’ (those produced within the UK/EU), meaning that if your client or business’s goods are manufactured in, say, China or Latin America, they could face possible tariffs.

The complex ‘rules of origin’ means that if more than 40% of a product’s pre-finished value was not of British/EU origin, then it could be face tariffs of more than 40%.

Borders

The 11^th-hour deal might promise tariff-free business, but cross-border trade will suffer the friction of extra customs checks and forms. As such, the UK and EU have agreed to help resolve these administrative barriers with provisions to make documentary clearance, transparency and advance rulings more efficient.

There will also be a ‘bespoke’ agreement on extra cooperation at roll-on, roll-off ports such as Dover and Holyhead which should help minimise any disruption, possibly with both sides sharing declaration data. To speed up border processes, there will also be mutual recognition of trusted trader programmes, with British producers observing both UK and EU standards. Haulage operators can also continue to transport goods throughout the UK and EU with no permit agreements.

The UK’s borders with the EU aren’t just physical. Three-quarters of UK data passes through EU countries, so ensuring that this data flows as smoothly as possible is essential for many British businesses. However, the post-Brexit agreement hasn’t resolved the tricky issue of ‘data adequacy’ (a status granted by the European Commission to non-EU countries that allows information to transfer freely). The deal has an interim solution, expected to run for six months, but a decision probably won’t be made for many months or even years.

Services businesses

The post-Brexit agreement has received much criticism for neglecting the UK’s services sector, which is worth 80% of the British economy. Free movement of services between the UK and EU has now ended, meaning that British firms will have to follow the different rules of individual member states.

The UK’s financial services are particularly chagrinned by the news, especially given that the issue of ‘equivalence’ (whereby UK financial institutions can trade, on a regulatory basis, as if they were still in the EU) wasn’t settled in the deal.

Even Boris Johnson has admitted the post-Brexit deal “does not go as far as we would like” over the financial sector’s access to EU markets. However, chancellor Rishi Sunak recently hinted he hoped a system of equivalence could be struck in the future. It’s likely both sides will return to the negotiating table in the months ahead.

Customs and trade

The tariff-free deal means that the much-feared rise in retail prices (caused by the taxes on goods) may have been been avoided: the British Retail Consortium has told shoppers they can exhale a “collective sigh of relief”.

Yet, the deal hasn’t reduced the need for more post-Brexit controls: new customs rules and rules of origins checks will mean parts/goods will be slower to enter the UK, with supply chain glitches. As such, there will be extra bureaucracy such as extra customs costs and forms, with businesses – and this obviously includes their financial teams and accountants – having to navigate an obstacle course of paperwork in early-2021.

If your business or client is one of the expected 250,000 companies making customs declarations for the first time in 2021, then it’s worth advising them to hire a customs agent and sign them up for EORI numbers (to transit goods) if you haven’t already.

Qualifications

UK accountancy and auditing qualifications are no longer recognised in the EU. This means means any accountants who want to work and go through the nerve-wracking experience of sitting exams again.

“We won’t be able to send audit partners who hold UK audit qualifications to sign audit reports overseas any more, which means the quality of audits will be that little bit lower, if the best person who could have given that audit opinion is a Brit,” Sally Jones, UK trade strategy and Brexit leader at EY, told the BBC recently.

Apart from accountants, this rule will also apply to other professions such as doctors, nurses, lawyers, architects, vets, ski instructors and engineers.

However, UK qualification bodies may be able to work with their counterparts in Europe to negotiate their own bilateral agreement.

Business Travel

British short-term business visitors can enter the EU visa-free for 90 days in any six-month period. However, there are restrictions on the types-of-work to be conducted in Europe. Business travellers can still attend meetings, trade exhibitions, conferences and consultations. However, if you are selling goods or services to the public, you’ll need a work visa. 

These rules vary by member state, so it’s worth checking the individual entry requirements of any country you’ll be visiting.

Further reading

• Trade deal means tariff free trade, but leaves plenty of work to do
• A guide for accountants to the Brexit deal and life after the transition period

Christian Koch is an award-winning journalist/editor who has written for the Evening Standard, Sunday Times, Guardian, Telegraph, The Independent, Q, The Face and Metro. He's also written about business for Accounting Technician, 20 and Director, where he is contributing editor.