Brexit. Selling goods to the EU. Problems and solutions
Post Brexit issues for UK businesses
Exporters have been facing problems sending their goods to the EU since the end of the Brexit transition period on 31 December 2020.
Many lorries have been turned away at the Kent border and over 150 have been fined for failing to have complete paperwork.
There have been problems at the Irish land border also, with lorries being turned away. This has led to shortages of items in Ireland and the Irish authorities have responded by temporarily allowing exporters from the UK to use an emergency movement reference number to board ferries if they cannot complete all of the required paperwork. This is only a short term temporary measure and the Irish authorities will expect hauliers and exporters to have the proper paperwork imminently.
It has however been agreed that no tariffs apply for goods entering the EU from the UK, that are proven to be of UK origin and a request for the preferential treatment has been included on the customs declaration.
The problems with paperwork have also prompted the French authorities to check the documents of all vehicles bringing goods into France instead of the usual sample of vehicles. This is leading to delays in the export of goods into France.
The issues most frequently being found are:-
- Failing to fill out departure declarations properly
- Changing the end destination (so documentation is incorrect)
- Failing to provide correct notifications for agricultural goods and foods
- The lack of original export health certificates
The Percy Pig problem
Many of you will have heard the problem as outlined by Steve Rowe, Chief Executive of Marks and Spencer. He said that “The best example I can give you of that is Percy Pig. Percy Pig is manufactured in Germany. If it comes to the UK and we then send it to Ireland, in theory it would have some tax on it.”
He would be correct if the goods are sent direct to Ireland from the UK without utilising the available reliefs. A tariff relief for goods originating in the EU when it is sent from one EU member state to another EU member state, even if it leaves the EU in transit, is available and is called Returned Goods Relief.
Using Returned Goods Relief would mean that there is no additional tax.
This example highlights the need to understand the reliefs that are available and to ensure you use the correct documents to get the relief.
Customs duties (tariffs) are very bureaucratic and failure to have the correct documents at the correct time will mean additional costs. Once an item is entered for customs it is rare that retrospective paperwork will allow a relief to be claimed. Once a declaration has been made, it is usually final.
A vital document for exports to the EU is the certificate of origin document. For goods to claim to be of UK origin, the goods must wholly originate in the UK. It may be necessary to provide proof of origin in another country to obtain relief.
In the Percy Pig example, a certificate of origin from Germany would be useful.
If the goods originate from a developing country there are often preferential rates of duty applied, so a certificate of origin from that country would be required to obtain those preferential rates.
Frequently goods contain components or parts that are sourced from other countries. There are rules that determine if the goods still originate in the UK or another country.
This is important to ensure that the goods can move tariff-free to the EU from the UK. The deal with the EU is that goods of UK origin can transfer tariff-free. Goods that do not originate in the UK will be subject to EU duties. If they had previously been imported into the UK and UK duties were paid, the UK duty can be reclaimed subject to the usual rules.
It is straightforward to identify the origin of goods produced wholly in one country. Frequently, however, there are components in a product that originate in several different countries. Where two or more countries are involved in the production of goods, the goods are deemed to have originated in the country where they were last substantially worked or processed.
Simple assembly is insufficient for the goods to be regarded as sufficiently worked or processed to change the place of origin. The following 3 rules are used to determine if goods are sufficiently worked or processed:-
- The ad-valorem or value added rule
- The change in tariff classification rule
- Manufacture from certain products or specific processes
The EUR1 (also known as the movement certificate) enables importers to import goods at a reduced or nil rate under the UK/EU trade agreement.
This document is vital to support any claim for preferential treatment, such as tariff-free entry in to the country that goods are being exported to. This includes the EU and any other country that the UK has a trade agreement with.
EU EUR1s should not be used from 1 January 2021 and UK EUR1 versions are now available. Suppliers of EUR1 include all Chambers of Commerce.
Selling to consumers in the EU – VAT
When selling to EU businesses the supply will be zero-rated for UK VAT. The EU business (on the assumption they are the importer) will account for the local VAT on import.
There are different rules that apply to selling to individuals and non-VAT registered businesses or entities in the EU. Prior to the end of the transition period a UK business selling goods to individuals in the EU, would charge UK VAT on the value of the goods and when the distance selling threshold was met, there was a requirement to register for VAT in the destination country. Since 1 January 2021, UK business can no longer use this facility.
For details of the new rules, please refer to my blog ‘The death of distance selling for VAT – post Brexit’
For advice and assistance on any of your Brexit issues, please contact us and our specialist Brexit advisors can help you.