On 1 January 2021, the UK left the European Union and, against all expectations but with a massive sigh of relief, did so with a trade deal in place. In spite of an agreement governing the future relationship between Britain and the EU 27, there are significant impacts and implications for Irish businesses.
While it’s positive that a Brexit deal has been agreed, understanding and navigating the new trading rules and regulations will put significant pressure on businesses already reeling from the effects of COVID-19.
Brexit makes the UK a third country, and it is essential that you determine exactly how the new trade terms and the supply chain, workforce, trade and tariff changes will affect your business now.
While tariffs and quotas are off the agenda for the moment, they may be imposed at a later date. As part of the deal, the EU can impose retaliatory tariffs should the UK deviate from EU rules - including those relating to workers rights, competition law, state aid, subsidies, social/environmental protection and taxation, and anything that might lead to unfair advantage for UK businesses trading with the EU. See further details below on how companies can claim zero tariffs on import into the EU and UK.
The UK leaving the EU Customs Regime on 1 January has a highly disruptive impact on many Irish businesses trading with the UK. The UK is now a third country. All Irish companies trading with the UK will need to engage with customs procedures that they have little or no experience with. Failure to comply with the new requirements will lead to delays.
At the core of this new regime is new customs administration for businesses. This was not needed before when trading with fellow EU countries. Customs declarations are set to increase ten-fold from around 2m to an expected 20m.
Adjusting to this new customs regime requires new paperwork and procedures. It will likely result in delays at borders and ports. This will include disruption to supply chains, with goods not getting on or off our island in a timely manner. It will also impact those using the ‘landbridge’ through the UK to and from EU markets. One example where delays have been seen is the requirement for hauliers using RORO ferry services to have a Pre-Boarding Notification number (PBN) lodged in advance. Failure to comply will result in the haulier being refused boarding until the necessary lodgements take place. With just-in-time supply chains operating between Ireland and the UK, any such delays cannot be afforded.
Accountable persons who are registered for both VAT and Customs & Excise (C&E) at 11:00pm on 31 December 2020 have been given automatic entitlement to VAT Postponed Accounting by Revenue. Postponed Accounting means VAT on importations is not paid at the time of importation but rather is postponed to when the trader is filing their next VAT return.
To enjoy zero tariffs, goods traded between the EU and the UK must qualify as originating under the terms of the TCA. Goods can qualify under certain rules of origin which vary product by product. However, merely consigning goods from the UK to the EU or vice versa is insufficient to qualify for preferential origin. Exporters who qualify their goods as originating must retain supporting documentation, and potentially be subject to periodic audits by customs authorities.
For qualifying goods only, exporters will need to prepare a Statement of Origin to be included as part of the shipping documentation. For exports from the EU, exporters will need to register on the REX system. It is the responsibility of the importer in either the UK or EU to present the relevant Statement of Origin to customs, allowing zero tariffs to be applied.
While this may appear to be simple in practice, we’re seeing this cause issues in the early days of Brexit. Companies are struggling to understand the process to qualify their products as originating under TCA.
One matter of serious concern is a scenario whereby a trader importing EU-originating goods into the UK from the EU, and then subsequently reimporting these goods into the EU - into Ireland, for example - cannot qualify the goods as UK-originating. This means they can't avail of zero percent on import into Ireland without either undergoing further production or the use of a special procedure such as customs warehousing or transit in the UK.
For Irish companies buying and selling goods to and from the UK, there are two actions to take:
Under the terms of the Ireland - UK Common Travel Area citizens of Ireland or the UK can travel and work in each other’s jurisdictions. EU nationals already resident in the UK will need to regularise their immigration position by obtaining EU Settlement Scheme status. Irish companies employing non-Irish or non-UK citizens in the UK for the first time will need to make an application to the UK immigration authorities for work permission. Business travel for these individuals will become more complex with restrictions on the activities that can be carried out as business travellers. Practical things that companies should be doing now, if they haven’t already, include applying for a sponsorship licence and communicating with eligible staff about applying to the EU Settlement Scheme.
Following Brexit, UK workers can no longer avail of EU Regulations regarding social security. These Regulations provided a system of rules identifying the appropriate jurisdiction in which social security was to be paid in respect of cross border workers. This typically would involve applying for what was known as an A1 certificate, with social security rights allocated to one jurisdiction only, thereby avoiding double social security costs for personnel.
In an effort to try and mitigate any disruption, a bi lateral agreement on social security between Ireland and the UK has come into force. Whilst the agreement will in most cases mimic the EU rules (and thereby avoid double social security costs), its protections only extend to Irish and UK citizens. Consequently, a double social security cost could arise for UK employees working in Ireland who are neither a citizen of Ireland or the UK. Furthermore, applications for the relevant ‘certificate of coverage’ (formerly A1 under EU rules) for all UK citizens either posted or working in Ireland should be made as soon as possible with effect from 1 January 2021.
This deal does not cover a number of industries, particularly those which do not trade in goods. For them, it will be very difficult to resolve a number of issues. For example, the deal does not answer key questions about financial services, which was put aside early in the process. The UK financial services sector has not been granted equivalence by the EU. This would have allowed UK financial services firms to continue to serve clients in the EU. This results in significant uncertainty and a reduction in the capacity of the financial services sector in the UK to trade with the EU.
On the upside, there are opportunities for newly established Irish subsidiaries of UK financial services and FinTech firms to sell financial services direct to the EU market. There are over 450m customers, and Ireland can act as a bridge into Europe. A PwC survey recently revealed that 67% of global asset managers plan to increase their presence in Ireland in the year ahead. The addition of Investment Limited Partnership legislation also increases Ireland’s attractiveness for Sustainable / ESG products and Private Equity investment management. There is potential for a significant number of jobs to be created.
Assess the role that the UK plays in your being supplied from or servicing the rest of the EU. Where possible, it may make more sense to build direct supply links with EU markets in order to avoid the complexity of moving goods through the UK. With new direct ferry services, there are now options for businesses to consider.
Make sure you are connected with the Customs Authorities. Appoint a customs broker who will prepare and file customs declarations through the UK and EU customs authorities' systems. Consider installing a digital solution to file your declarations directly. Review your deferred payment account limits to ensure it's consistent with your new import tariff/VAT profile.
Businesses need to understand how to claim preferential origin for imports and remove customs duties of purchased goods. They also need to understand how to provide their customers with proof of preferential origin so that they can remove customs duties when importing their goods.
Under the terms of the Brexit withdrawal, Irish and UK citizens are still free to move within the Common Travel Area, albeit with both countries having Covid-19 related rules and regulations. However, since 1 January, immigration requirements, including securing work permission and restrictions on activities that can be performed as business travellers, are now a key consideration for UK nationals moving throughout the rest of the EU, including UK nationals resident in Ireland, with similar policies in place for EU nationals seeking to travel to and work in the UK. Businesses need to plan ahead and build potential immigration requirements and robust pre-travel processes into their Global Mobility policies.
Furthermore, companies with personnel working in Ireland or the UK need to apply for the appropriate certificate of coverage from 1 January 2021 in order to avoid the potential imposition of double social security. This cost may be unavoidable where the individual is neither a citizen of Ireland or the UK.
Ensure your systems now classify B2B goods transactions to/from the UK (excluding Northern Ireland) as exports/imports rather than intra-Community movements. These transactions should no longer be reported on VIES or Intrastat returns nor be included in the “E” boxes on your periodic VAT returns. B2B goods transactions with Northern Ireland should remain classified as intra-Community movements. All Northern Ireland VAT numbers now have the “XI” prefix rather than “GB”. prefix and the XI prefix should be used when validating a number on the VIES checker system (note the UK have set up their own UK VAT number validation system). If you are VAT registered but were not registered for C&E at 11:00pm on 31 December 2020 and you wish to avail of VAT Postponed Accounting, you must register for C&E.
We are ready to talk to you now about the impact Brexit will have on your organisation. To discuss how we can support you in looking forward with confidence, contact us today.