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Tax aspects of UK–EU trade in goods which should be considered after Brexit

Although the UK formally left the European Union on 31 January 2020, thanks to the transition period, for businesses and consumers Brexit really took effect on 1 January 2021 when the UK withdrew from the single European market and Customs Union.

The desire to pursue an individual economic policy was the main reason for the UK’s withdrawal from the EU. Thus it was obvious that the divorce would bring a number of changes, including in the trade in goods. Nevertheless, the protracted negotiations on a trade and cooperation agreement kept businesses and consumers on their toes on both sides of the English Channel. The spectre of having to base trade on the rules of the World Trade Organization (WTO) receded only at the end of December 2020, when British and EU negotiators finally managed to work out a common position. The EU–UK Trade and Cooperation Agreement, setting out the principles for cooperation after the end of the transition period, was published on 24 December 2020. The agreement is now subject to the ratification procedure, and until 28 February 2021 its duration is temporary.

Below we discuss the most important rules applying to trade in goods between the United Kingdom and the European Union from 1 January 2021.

Customs

From the standpoint of trade in commodities, the most important regulation of the EU–UK Trade and Cooperation Agreement is the introduction of 0% customs tariffs and simplifications in trade. Although the introduction of 0% duty rates has reduced the risk of lowering the profitability of trade between the UK and the EU, businesses must adapt to many changes.

Application of customs exemptions is subject to certain conditions. An essential one is that the product meets the rules of origin. These rules clarify which products can be considered as originating in EU or UK territory, namely:

  • Products wholly obtained in EU/UK territory
  • Produced in EU/UK territory exclusively from materials originating in that territory
  • Under certain conditions, products produced in EU/UK territory, incorporating materials not originating in that territory.

If materials from third countries were used for the production of a given product and their use exceeds the levels specified in the agreement, they may be subject to customs duty, set by the WTO. Therefore, the origin and content of the components of a given commodity are important in determining the duty rate.

The applicant claiming preferential tariff treatment is the importer of the goods. Such a claim shall be based on a statement where the product originates from. This statement should be made out by the exporter or else based on the importer’s knowledge of where the product is originating from.The statement must provide sufficient information on the commodity to enable precise identification. Both the importer and the exporter must keep the required documentation confirming fulfilment of the conditions for application of 0% duty rates.

Although as a rule the exchange of goods will not be subject to customs duties, it will be necessary to complete the customs formalities related to crossing the border between the EU and the UK. Businesses that have so far traded only with EU countries should obtain a special EORI number.

EXCISE DUTY

Import of excise goods from the UK into EU territory (i.e. alcoholic beverages, tobacco products, electricity and energy products, raw tobacco, liquid for electronic cigarettes, innovative products, and passenger cars) requires the payment of excise duty before the goods are released for trading.

With regard to the movement of excise goods between the UK and the EU which started by 31 December 2020 and will end by 31 May 2021, the EU regulations on intra-Community movement will apply, also under the excise duty suspension procedure. It will not be possible to apply EU rules for movement of excise goods starting on or after 1 January 2021.

VAT

Changes in the trade in goods also apply to VAT settlements. Deliveries of goods between the UK and Poland—or more broadly the EU—will no longer be accounted for as intra-Community supplies and acquisitions (B2B transactions) or mail-order sales (B2C transactions), but as exports and imports of goods. For goods imported from the UK, this means VAT settlement in the EU country to which the goods are imported. On the other hand, goods exported to the UK will be subject to a 0% VAT rate in the EU, but will be subject to UK VAT requirements.

• Import of goods from the UK into the territory of an EU country

The most important change when importing goods from the UK to Poland is the need for the importer to settle the output VAT. The deadline for payment of output VAT (and customs duties) is 10 days from the date of notification of the amount of customs and tax duties by the customs authority. On the other hand, the taxpayer will be able to deduct import VAT in the VAT declaration submitted by the 25th day of the month following the month of import. This method of settling VAT on the import of goods results in a temporary freezing of cash on the importer’s side and may contribute to the deterioration of their financial liquidity.

However, importers may enjoy the simplified method of settling VAT in the import declaration (and not during clearance). Such a possibility is granted, among others, to companies obtaining the status of an Authorised Economic Operator (AEO). Details of settling VAT on import in the declaration are regulated by Art. 33a and 33b of the Polish VAT Act.

VAT refunds will be subject to the rules currently applicable to entities from third countries, i.e. primarily based on the principle of reciprocity.

• Export of goods to the UK

When exporting goods from the territory of Poland to the UK on or after 1 January 2021, it should be remembered that in exports, the VAT point arises at the time of delivery of the goods (or at the time of payment of all or part of the entire price, if it occurred before delivery of the goods), and not when the invoice is issued (as for intra-Community supplies of goods). Such a delivery may enjoy a 0% VAT rate, provided that the exporter possesses customs documents confirming export of the goods. These rules apply regardless of whether another business or a consumer is the recipient of the goods.

The settlement of chain transactions in which entities from the UK participate will be more burdensome.

Trade with Northern Ireland

The regulations described above apply to trade with partners from England, Scotland or Wales. Under the protocol on Ireland and Northern Ireland, trade with Northern Ireland will remain unchanged: Northern Ireland will still be treated like a member of the single European market and Customs Union, and EU VAT regulations will apply to trade in goods with it. Therefore, intra-Community acquisition of goods will continue to be recognised in Northern Ireland and customs duty will not apply.

Taking into account some simplifications, such as the duty exemption, the EU–UK Trade and Cooperation Agreement aims to facilitate the flow of trade between the United Kingdom and the European Union. Nevertheless, Brexit introduces barriers that can be problematic for many businesses. If you are looking for support in the correct settlement of trade in goods from the UK to Poland, please contact us. KR Group has vast experience providing tax support for transactions with third countries outside the EU.

Katarzyna Adamowicz
Head of Tax

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