On December 24 2020 after years of failed negotiations, the UK and European Union(EU) finalized a trade deal that went into effect at the beginning of this year.
This zero-tariff, zero-quota deal is seen as a largely positive outcome, however the new requirements that were agreed upon are still expected to cause some significant issues within the transportation industry as the current policies and regulations are facing major changes that will require companies to adapt to the new rules.
This will be most felt in international shipping and customs brokerage, so it is important to understand the Brexit changes and how they will affect businesses.
What is Brexit?
As of January 1, 2021, the transition period with the EU officially ended, and the UK will now operate an external border as a sovereign nation. The UK and EU have released a 200-page manual that outlines the rules and regulations for transporting goods between the UK and the EU. Additional regulations will be introduced in April and July 2021.
The UK leaving the EU is fundamentally changing how trade with the EU and other strategic partners around the globe will be handled. This has caused a seismic shift of the shipping landscape of Europe —changing how goods move by all modes across the entire continent. Supply chains are likely to be significantly impacted significantly by the Brexit deal until companies are able to fully adjust to the changes that were implemented on Jan. 1, 2021.
What Does Brexit Effect?
Brexit will affect all EU businesses that trade goods with the UK and vice versa.
The three most significant shipping effects of Brexit are the following:
- Goods originating in the UK destined for other EU markets and countries that have an agreement negotiated with the EU.
- Cargo entering the UK from EU nations and countries that have trade agreements with the EU.
- Shipments from markets outside the EU that currently pass through the UK that are destined to other EU markets (and vice versa)
What Does the Brexit Deal Mean for Shippers?
Existing tariffs will be eliminated on the trade of goods moving between the UK and the EU starting on January 1, 2021, depending on where the shipments originate from. Companies and carriers will likely have to deal with more paperwork and administration when shipping between the UK and the EU. This will lead to increased costs and adjustments across supply chains. Customs clearance will now be required for all goods moving between the UK and the EU, including return shipments. You will have to declare the goods you are sending by completing a commercial invoice as well as follow the revised VAT rules.
You can read a full explanation of the new Brexit rules here.
Master the Basics
Start with the following basic steps to keep your goods moving as smoothly as possible.
Register for an EORI Number in the UK and EU.
An Economic Operator’s Registration and Identification (EORI) number will be required to continue trading between the UK and the EU.
Shippers selling goods valued at or below £135 into the UK will be responsible for collecting and paying UK VAT (value added tax) for these shipments. The VAT amount must be collected at the point of sale and paid to HMRC (Her Majesty’s Revenue and Customs) through the UK VAT registration. For goods sold into the UK valued above £135, the importer will remain responsible for paying the UK VAT. This can be paid by the importer via postponed VAT accounting or through the customs declaration. If your UK business is importing on its own name into the EU, you need to be VAT registered in the EU. It is recommended you do this in the country of clearance.
Origin of Goods
To benefit from preferential tariffs, the products you are shipping must originate in the UK or the EU. You will need to include proof of origin of goods with the commercial invoice or other commercial documentation (excluding a bill of lading). You can self-declare the origin of goods for the first year.
Appoint an Importer of Record (IOR)
The IOR is responsible and liable for your customs declarations. For UK businesses exporting to the EU this can either be an EU-based subsidiary if they are part of the transaction or an EU-based customs broker.
Agri-food consignments will require health certificates and undergo sanitary and phytosanitary controls at border inspection posts. They will still be inspected, but at other locations. It is your responsibility as the shipper to check the rules and regulations and be responsible to know if your goods will require inspection.
Are You Prepared for the New Brexit Deal?
Experts predict that as relationships become more stabilized, new information surrounding trade agreements and tariffs will become more readily available. It is critical to prepare now and begin post-Brexit planning about how to get your shipments across borders.
Despite the new trade deal being in effect, most businesses are unprepared for the changes that took place on January 1, 2021. Challenges like navigating new IT systems, scaling up for more paperwork, and revising supply chains will be key factors for success in the months ahead. Adding another layer of complexity, the pandemic has produced unexpected setbacks. COVID-19 has impacted available capital and has slowed Brexit preparations, preventing businesses from investing and establishing new customs processes to protect themselves against disruption to supply chains.
The Brexit guidance issued by the UK government is to “get someone to deal with customs for you.” If you partner with an outside organization to assist with Brexit-related changes, be sure to choose one that specializes in international shipping and customs brokerage processing. An experienced third-party logistics provider (3PL) can provide the support your business needs during this transition period and beyond.
If you are seeking logistics support and help navigating international shipping we would love to hear from you. You can read DCL’s list of services to learn more, or check out the many companies we work with to ensure great logistics support. Send us a note to connect about how we can help your company grow.