A guide for accountants to the Brexit deal and life after the transition period

On 31 December 2020, the UK officially left the EU single market and customs union, following the end of the Brexit transition period. One week before, on Christmas Eve, the UK and EU announced a trade deal that would ensure tariff-free access to EU markets for British businesses, which has since been voted into law by parliament.

However, there will still be significant changes to business and financial processes. Finance professionals need to understand how these will impact their own business processes, as well as those of clients.

Even small businesses that export or import to the EU will be affected. So will those employing EU workers, or sending workers to visit EU states.

Headlines

• Government announces £20 million SME Brexit Fund to ease the burden of customs processes

• Customs processes
• VAT
• Financial reporting
• People and travel
• Data protection
• Resources
• Latest updates

Customs processes

The Brexit trade deal ensures tariff-free and quota-free access to the EU, one of the world’s biggest markets. Essentially, it means that both sides can continue trading in much the same way as they did before.

EORI number

• In order to move goods in or out of the UK, businesses will need a UK EORI number (Economic Operator Registration and Identification). This should be prefixed with the letters ‘GB’. HMRC has automatically enrolled companies that are VAT registered, and have traded with Europe. Firms below the VAT threshold need to apply online. The process is simple and should take less than 10 minutes. More information here.
• Businesses that don’t have an EORI number can expect increased costs and delays. For example, if HMRC can’t clear a company’s goods at the border, the business may need to pay storage fees.
• An EORI number won’t be needed if the business provides services only.
• Action: check if your organisation needs an EORI number.
• In order for an organisation in the EU to receive goods from a UK supplier, they will also need an EU EORI number. More information here.
• Action: check trading partners have an EORI number.
• If you move goods between Great Britain (England, Scotland and Wales) and Northern Ireland, you will need an EORI number that starts with XI. However, you can’t get an XI EORI without obtaining a GB EORI first. More information here.
• You won’t need an EORI number to move goods between Northern Ireland and Ireland (which is in the EU).

Customs declarations

• Customs declarations need to be made for any goods entering or leaving the UK.
• Making customs declarations can be complex, so businesses are advised to appoint appoint a customs agent or freight forwarder to handle this on their behalf.
• Alternatively, businesses can do this themselves using specialist software or online via the Customs Handling of Import and Export Freight (CHIEF) system. Businesses can also make a simplified frontier declaration when importing goods.
• In the Brexit deal, the UK and EU both agreed to support the efficiency of cross-border trade in terms of documentary clearance and transparency. However, a significant amount of bureaucracy is still expected.
• Action: decide who will make the customs declaration. Do any further procedures apply?

Common and Union Transit

• Companies that depend upon moving goods using tight deadlines within the UK or EU should check out Common and Union Transit. This will enable them to transit goods more rapidly as it doesn’t require customs declarations and duties at each border crossing.

Rules of origin

• The United Kingdom and the European Union have agreed to 100% tariff-free trade, meaning there will be no tariffs or quotas on the movement of goods between the UK and the EU.
• However, the deal only covers ‘originating goods’ (ie those produced within the UK or EU). The ‘rules of origin’ regulations means that products will attract tariffs if more than 40% of its pre-finished value was either not of British origin or from a non-EU country. UK firms must self-certify the origin of exports to the EU.
• More information here.

Duty deferment account

• Organisations that regularly import goods from the EU can apply for a duty deferment account, which allows payment of customs charges once a month, instead of paying for individual consignments. Having a deferment account can help a business ensure high-value shipments are cleared quickly and simply during customs checks.

Assigning responsibility

• Consider making a person in the business responsible for leading customs planning. In general, staff need to understand the processes involved in shipping goods around the EU. HMRC has a useful guide here.
• The government has made £16m available for businesses to help train staff in dealing with customs processes. You can find a list of training providers here.

Northern Ireland

• Northern Ireland will continue to follow EU single market rules for importing/exporting goods.
• This means that there will be customs procedures for goods transiting between the UK and Northern Ireland.
• There will be no changes in how Northern Irish goods move from Northern Ireland to Great Britain. But customs declarations will needed for any goods brought into Northern Ireland from Great Britain.
• For more information, check out HMRC’s guide to moving goods in and out of Northern Ireland.

Government reliefs and financial assistance

• There is funding available from the government that could help businesses with customs declarations, such as customs warehousing and inward-processing relief.
• For a list of grants and how to apply for them, see here.

Contact details and more information

HMRC’s Brexit page.

• HMRC helpline: 0300 322 9434
• HMRC textphone: 0300 200 3719
• HMRC webchat

VAT

UK businesses now have to apply VAT to trading with EU countries in the same way as when trading with non-EU countries. EU countries will also deal with the UK as they do with countries outside the EU.

Postponed accounting

• Businesses that are registered for VAT in the UK are now able to use postponed accounting. This means that businesses won’t need to pay import VAT when their goods arrive at the British port or airport. Instead, they’ll need to account for it on their VAT return. This will apply both to imports from the EU and non-EU countries.
• This could be advantageous for some firms (especially those with cashflow issues) but could cause extra paperwork six months down the line for others.
• There will no changes to how VAT is treated on goods moving between Northern Ireland and the EU.
• More information here.

Registering for VAT in EU countries

• Businesses may need to register for VAT in the EU country that they sell to. More information on the European Commission website.

Distance selling

• Distance selling means selling goods/services through digital, TV, mail order, phone or text messaging.
• If a business ‘distance sells’ to the EU, they should register for VAT in the country that they are selling to. This is even more important if the total value of goods exceeds the distance selling threshold for that country (€35,000 for most EU countries).

VAT on digital services

• The UK has now withdrawn its VAT Mini One Stop Shop (VAT MOSS) scheme, which enabled British digital companies to declare sales and pay VAT in the EU, rather than the painstaking process of doing so in each individual member state).  All final returns for MOSS should be submitted by 20 January 2021.
• Businesses that provide digital services to customers in the EU can still use VAT MOSS, but they will need to register for VAT MOSS in each EU country where they sell services. More information available on the European Commission website.
• Alternatively, businesses can opt to pay VAT in each member state where they sell digital services to consumers. Again, see the European Commission website.

VAT refunds

• British businesses claiming EU VAT incurred on or before 31 December 2020 must submit their claims through their HMRC portal by 31 March 2021.

Northern Ireland and VAT

• Because Northern Ireland’s border with the EU remains open, UK import VAT will need to be paid on any goods imported into Great Britain (England, Scotland and Wales) from Northern Ireland. HMRC must be informed about any goods.
• EU VAT will need to be paid on any goods entering Northern Ireland from Great Britain (however, this can be deferred via postponed accounting).
• Imports/exports between the European Union to Northern Ireland will follow current EU procedures.
• More information here.

Financial reporting

There will be some changes to corporate reporting.

• When preparing annual accounts, companies will need to use ‘UK-adopted international accounting standards’ instead of ‘EU adopted IAS’ for financial years beginning on or after the 1 January 2021. When preparing accounts for financial years before 1 January 2021, companies can continue using EU-adopted IAS.
• UK-incorporated parent companies with a subsidiary or presence in a European Economic Area (EEA) country will need to check the reporting requirements of that particular member state.
• Public interest entities such as banks or insurance firms will have to follow disclosure and transparency rules issued by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA).
• UK companies will also need to appoint a UK-registered audit firm.
• More information on the HMRC website and the Financial Reporting Council website.

Company Law

• UK businesses with a branch operating in the EU will become a third country business in the event of no-deal, and so will need to comply with the laws in those countries.

Accounts

• Accounts will need to be prepared using ‘UK adopted IAS’ instead of ‘EU adopted IAS’ for financial years beginning after the UK leaves the EU. Initially, standards will be the same, but may later diverge – more information.

Audit

• UK companies will need to appoint a UK registered audit firm. An individual UK registered auditor will need to sign the audit report on behalf of the firm.
• Some rules relating to approving individuals and firms for registration as auditors will change. Find out more about auditing after Brexit.

Disclosures

• The Financial Reporting Council is encouraging companies to be specific about the threats they face from leaving the EU. 
• Recent advice to finance directors and audit chiefs says challenges should be disclosed, along with details of actions taken or planned.

People and travel

• Workforce
• Qualifications
• EU workers’ right to stay
• Travel
• Recruitment

Workforce

• Any business reliant upon EU nationals should encourage these staff members to apply for the EU Settlement Scheme so they can continue to live and work in the UK. They must apply before 30 June 2021.
• British businesses can still hire staff from EU. But employers will also need a sponsor licence to hire workers from the EU, EEA and Switzerland. Details on how to get a sponsor licence here. A sponsor licence isn’t needed for Irish citizens.
• Employers can continue to carry out the same Right to Work checks for EU/EEA/Swiss citizens that they currently do (e.g. inspecting their passport or identity card). However, from 30 June 2021, they will need to follow the government’s new Brexit rules.

Qualifications

• Under the Brexit deal of 24 December, there will be no more automatic recognition of qualifications for many professions, including accountants and auditors.
• Fourteen EU member states including Germany, Italy, Spain and the Netherlands will recognise professional accountancy and bookkeeping qualifications without any restrictions.
• However, 13 other EU countries, including France, Denmark and Greece, have specified that British accountants, bookkeepers and tax advisers will need to undertake an ‘economic needs’ test.
• The situation is tougher for auditors. In France, Italy and Portugal auditors may need to be resident in order to practice, while in other countries, they may need to re-qualify.
• The UK will continue to recognise the accountancy and bookkeeping qualifications of EU member states without imposing any reservations or tests.

Travel

• British nationals must have at least six months left on their passport (which also must be less than 10-years old) in order to travel to EU countries. UK passport-holders will no longer be able to use the EU queue at the airport and borders.
• Tourists won’t need a visa for stays of less than 90 days to EU/EEA countries. However, they may need a visa or permit if they wish to stay longer, work or study, or for business travel. For more information, consult the travel advice for each individual country.
• The European Health Insurance Card (EHIC), which allows British passport-holders access to free healthcare on the continent, will still be valid in the EU until it expires. It will be replaced by a global health insurance card (GHIC), which you can now apply for here. 
• Business travellers won’t need a visa if visiting the EU for a business meeting or attending a conference. However, they may need a visa or permit if they are transferring from a UK branch of a company to its office based in an EU country, selling goods/services to customers in an EU country or providing services as a self-employed person.
• Free mobile phone data-roaming will end. However, mobile providers such as EE, O2 and Vodafone have announced they won’t reinstate roaming charges.
• These rules don’t apply to Ireland.

Data protection

Most of the data protection rules affecting small to medium-sized businesses and organisations will stay the same after exiting the EU.

The UK is committed to maintaining the high standards of the GDPR (General Data Protection Regulation) and the government plans to incorporate it into UK law after Brexit.

• No EU contacts or customers – where a business does not receive personal data from the EU, little or no additional work will be required to prepare for data protection compliance after Brexit.
• Businesses that receive data from the EU – where an organisation receives personal data from contacts in the EEA, extra steps will be needed to ensure that the data can continue to flow after Brexit.
• Businesses will need to comply with both UK and EU data protection regulations after Brexit if they have an office, branch or other established presence in the European Economic Area (EEA), or if they have customers in the EEA.

Data protection information

• The issue of data protection is still unresolved.
• The EU is currently undertaking an ‘adequacy assessment’ of the UK to establish whether the country has a sufficient level of data protection. If the UK is found to be ‘adequate’, then personal data should flow as freely as it did before.
• However, this is likely to take some time. The quickest data adequacy agreement struck between the EU and another country took 18 months (a deal with Argentina).
• A six-month ‘bridging mechanism’ has been put in place. During this time, personal data will continue to transfer freely between the UK and EU countries.
• More information can be found here.

Resources

• The British Chambers of Commerce has a free checklist.

Latest updates

11 February

SME Brexit Fund

HMRC will give grants available small and medium-sized UK businesses that need support on customs duties and VAT.

Up to £2,000 will be available for professional advice or support staff training for businesses with fewer than 500 employees and a turnover of less than £100m can apply. Applications can be made online soon at the following link.

24 December

Free Trade Deal

The document containing the full details of the EU-UK trade deal can be found here.

16 December

Binding Origin Information

The Government has published new guidance warning that Binding Origin Information decisions issued by the UK or for EORI numbers starting GB will not be valid in the EU from 1 January 2021. BOI is a European Union (EU) wide system that allows parties to obtain a binding decision from an individual EU Member State on the origin of its goods. These decisions are legally binding throughout the EU.

8 December

Taxation (Post-transition Period) Bill

This new Bill will make provision for goods in Northern Ireland and their movement into or out of Northern Ireland, including the imposition and regulation of new duties of customs.

28 October

Completion of customs import declarations updated

HMRC updated help and support guidance for traders getting ready for Brexit. It now includes a link to register for a new webinar concerning the completion of customs import declarations.

23 October

Help with customs declarations in a no-deal Brexit

HMRC has updated its list of customs agents and fast parcel operators who can help submit customs declarations in a no-deal Brexit.

Read more about getting someone to deal with customs.

22 October

HMRC Brexit preparation guidance updated

HMRC has updated its Brexit preparation webinar guidance, aimed at traders preparing for Brexit.

Click to register for the next live webinar about getting ready for Brexit and the transitional simplified procedures that have been added.

17 October

Fears over VAT and Customs block deal

DUP opposition makes no-deal more likely

16 October

HMRC accelerate 95,000 firms onto simplified import procedures

HMRC has automatically registered 95,000 businesses for simplified import procedures. Known as Transitional Simplified Procedures (TSP), these should allow most traders up to six months to pay import duties and submit customs declarations

VAT guidance for EU businesses updated

The government has updated its guide for EU traders importing from the UK to include post-Brexit section.

Bringing goods to the UK from the EU through RORO ports

HMRC has updated its online guidance for businesses using roll-on roll-off (RORO) locations to transport goods to the UK from the EU in a no-deal Brexit.

9 October

Movement of Irish goods in a no-deal Brexit

HMRC has published guidance on how excise goods will be moved to and from Ireland in a no-deal Brexit.

• Moving excise goods from Northern Ireland to Ireland in a no-deal Brexit

Temporary tariff regime

The Government has updated the temporary tariff regime if the UK leaves the EU without a deal.

• Lower tariffs on HGVs entering the UK market;
• Adjust tariffs on bioethanol; and
• Apply tariffs to additional clothing products.

Read more in our latest Brexit articles here.

AAT Comment offers news and opinion on the world of business and finance from the Association of Accounting Technicians.