Sarah Halsted

Written by: Sarah Halsted

Sarah Halsted

Technical Associate Director

Brexit deal revealed, but what does the future have in store?

The 1,246-page EU-UK Trade and Co-operation Agreement, which came into effect on 1 January 2021, includes relatively few provisions related to customs, but is nevertheless a highly positive development for UK businesses trading in goods with the EU.

The main benefit of the deal is that there will be no customs duty payable on trade in goods between the UK and EU provided those goods are of UK/EU origin. This is vital as a no-deal scenario would have seen the price of many goods inflated by WTO-level tariffs as they crossed the border. However, traders must be able to demonstrate that their goods meet the new rules of origin laid down in the agreement (see HMRC’s guidance to Claiming preferential rates of duty between the UK and EU). The fact that goods are merely being shipped from either jurisdiction will be insufficient to qualify for tariff-free access.

It is also important to note that the agreement does not remove the need for border checks or for importers and exporters to make customs declarations when moving goods to or from the EU. These are still expected to be considerable logistical and administrative burdens for businesses. That said, the biggest benefit of the deal may be that its very existence indicates both sides are willing to try to make the new border arrangements work. This may in itself be enough to reduce the risk of serious blockages at ports and airports. 

The agreement will however face some tough tests over the next few months.

Ports are typically quiet in early January and it has been reported from Dover that there is even less traffic than usual this year, no doubt due to coronavirus restrictions and understandable business caution over shipping goods in the immediate aftermath of the end of the Brexit transition period. It remains to be seen how the key Channel crossing routes will cope once freight movements return to normal levels.

For one thing, importers of non-controlled goods into the UK currently have the option of delaying submission of the customs declaration to HMRC for up to six months from the point of import. From 1 July 2021, businesses will face a further challenge when full customs entries are required at the time of clearance.

An additional but inevitable consequence of any tariff-free trade deal on goods is that the UK has committed to maintain many common standards with the EU. Once Brexit’s strongest supporters have seen the practical implications in their areas of interest, they may put pressure on the Government to renegotiate parts of the deal.

Even with the removal of customs duties there will still be plenty of additional paperwork related to customs procedures that were not previously necessary on EU trade. Many businesses will have to adapt their VAT accounting on goods and services to implement the post-Brexit trading picture. There are already signs that some smaller vendors in the EU have decided to suspend their supplies of goods to UK customers, and many UK SMEs may also opt to avoid the red tape and concentrate on the domestic market.

Given these pressures, will the current goodwill survive? 

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