Your four-step Brexit checklist for VAT and Customs

Doing business with the United Kingdom (UK) will change drastically for companies within the European Union (EU) as of January 1, 2021. The transition period will last until December 31, 2020, but after that date Brexit will be a reality. The EU and the UK are still negotiating the terms of their future relationship, but whatever the outcome, you need to be prepared.

Prepare your company for Brexit in a few steps!

To kick-off our Baker Tilly Brexit Bites, we have created a Brexit checklist, outlining four steps that a company could take in preparation for Brexit. Once the clock strikes twelve, there will be no turning back and (certain) changes will take effect immediately. Therefore, it is better to be safe than sorry.

Step 1: Analyse the supply chain

Analyse the supply chain of your business, and map the transaction flows with the UK. This will provide an opportunity to focus on those flows, and determine or examine whether those flows can, and should be, adjusted. Following that analysis of the supply chain, potential obligations can be identified or even prevented.

Example

If goods are currently transported from a factory (in for example China) to the UK, and subsequently dispatched from the UK to the EU, it may be prudent to transport the goods directly to an EU country such as the Netherlands instead, after Brexit. This is especially true if the EU is your largest market.

In the Netherlands, you can customs clear the part of the goods which will be sold in the EU, whilst not importing the goods which will be sold to the UK. One way to do this would be by storing the latter goods in a customs bonded warehouse. By doing so, no import duties and import VAT will be due in the EU, on the goods that are subsequently shipped to the UK. If the goods are customs cleared in the UK, local import VAT and import duties will be due there.

By managing the flow of goods in this manner, you avoid having to pay non-recoverable import duties twice: once in the UK and then again in the EU. In this way, you avoid double taxation upon import of the same goods.

Step 2: Check your logistics partners

Goods can move freely within the EU; there are no customs obligations and goods can be transported across borders without being stopped for administrative reasons. This is referred to as the principle of free movement of goods. In relation to non-EU countries, this principle does not apply, and it is clear that without this principle it is much harder to move goods around. After Brexit, trading goods with the UK could potentially become harder, as there will be import and export obligations. Ensure that the logistics partners you have contracted are equipped for the additional tasks.

Example

If you produce (perishable) goods which need to be refrigerated and can only be left in a truck for a few hours, it is currently possible to transport these goods between the EU and the UK within that limited timeframe. After Brexit, transporting goods between the EU and the UK may take longer due to customs formalities or border controls. In this event, adjustments to the supply chain may be needed.

Step 3: Check the contracts

Check all contracts relating to transactions with the UK and, more specifically, check the conditions that were agreed upon. This applies both for the contracts with your customers as well as those with your suppliers.

Using the right Incoterms can, for example, prevent additional obligations arising for both parties. We also recommend that you consider the existing VAT and customs obligations of the parties, in order to benefit fully from existing arrangements.

Example

If you are selling goods to a company established in the UK and have previously agreed upon an Incoterm such as DDP, you need to reconsider that term. If these conditions are still applicable after a no-deal Brexit, you will be required, in your role as supplier, to customs clear the goods in the UK and will probably also have a VAT reporting obligation with regard to the subsequent sale in the UK. Setting new contractual terms could prevent new obligations for your business.

Step 4: Make sure you have arranged the right formalities

When doing business with the UK after Brexit, you may be faced with additional formalities. It may be the case that goods are exported from, or imported into, the UK. This will trigger customs formalities such as customs declarations, import and export licenses, authorisation for customs simplification or procedures, or valuation. To avoid costly problems after Brexit, you need to be aware of these requirements and their impact on your business.

Example

Upon importing goods into the Netherlands, import duties and VAT are due immediately. In the Netherlands, it is possible to obtain an import VAT deferment license. With this license, it is possible to declare the import VAT due in the Dutch VAT return. This means that VAT is not due immediately. If a company has a full right to deduct VAT, there will, on balance, be no VAT due with regard to this transaction. This is beneficial for the cashflow of the company, especially if the company imports goods on a regular basis. It can take a few months to settle all formalities and obtain such a license.

Using this checklist, your company will be able to tackle some of the VAT and customs challenges that may arise after Brexit. If you would like to discuss your position, please feel free to contact Marisa Hut or Barthold Bergman of VAT & Customs Advisory.