Brexit rules and how it affects us as small business owners seem very confusing, and there is a lot of conflicting information out there.
In this post, I will attempt to collect all the information I’ve found and how I’ve interpreted it. Please note, that this is my interpretation. Although I’ve spent hours reading up on this, there may be things that I misunderstood or information and clarification may be added later by the government. I’ve included links to various sources that may help you keep up to date.
Both the UK and the EU have agreed to provide transparent and searchable information to small and medium-sized businesses to facilitate trade. This includes information about customs duties, tax and rules of origin. However, the agreement does not state when this will be made available, and although there are many articles with information floating around, many are from before the agreement was signed.
The full trade agreement can be found here. The most relevant sector is part 2 (from page 18) and the annex about origination (from page 415).
You may also want to look at the UK-EU trade corporation agreement summary.
Brexit for your business Facebook group by Babs Jamieson
EU Single market and customs union vs customs boarders
The UK and EU have agreed to zero tariffs and zero quotas subject to goods meeting the rules of origin.
Exporting your products to the EU will now work similarly to exporting to a customer outside the UK and EU. The difference is that your EU customers may not have to pay any duties as long as you can provide proof or origination for your products.
Previously our orders from the UK to the EU did not have to cross any customs boarder which meant that as long as you paid the duties and fees when you imported your goods, it did not make a difference if you sold them to the UK or EU.
As a member of the EU, UK businesses did not have to charge other EU business customers VAT as long as you had their VAT number and declared the sale to HMRC. This meant that customers based in the EU enjoyed buying from UK businesses even if their orders did occur a higher shipping fee than buying from a local supplier in their country, making competition easy.
Now that we have left the single market, a stockist based in the EU will need to pay VAT in their country plus a customs handling/admin fee. And if the product is not of preferential origin, there may be duties to pay as well. This VAT will be paid in their country, and they can claim it back on their VAT returns but for businesses doing a lot of importing this will still affect their cash flow and they won’t be able to claim back the customs handling/admin fee.
Rules of origin
If you import some or all of your components, your items will only be eligible to duty-free export to the EU if it meets specific originating criteria. I’ve tried to find more information about this, but so far I have not found anything concise.
It’s my understanding that preferential origin means a country that the EU (if you are selling to the EU) or the UK (if you are selling to the UK) has a free trading agreement in-place with.
The percentage that has to come from a preferential origin varies depending on the tariff code. Still, most seem to be 50%, meaning that at least 50% of the value has to be added in the UK to classify preferential origin when exported to Europe.
Hopefully, there will be more clarity around this sometime soon as the way I read it now is that if you manufacture your products in say mainline China and import it the UK to sell as it is or perhaps add some packaging that won’t be enough to be of preferential origin and therefore can not be sold to a business customer in the EU duty-free.
Selling to countries in the EU
You will need an EORI number, and if you ship to Northern Ireland, you need a second one that starts with a XI prefix.
For a business to business (B2B) sale, it is my understanding that to sell to any EU member state you need to register for VAT in each country. This is regardless of whether you meet the UK threshold or not. The thresholds only apply in your own country or if you are established in that country as well (run a separate business in an EU state).
If you are VAT registered in the UK and supply a private person in the EU, you would still charge them UK VAT as the sale happens here and if the order value is over £22 (may change on the 1st July 2021) your customer will have to pay EU VAT and customs fees when their products arrive in their country.
Each EU country has its own rules, and in some, the customer has to provide their own customs declaration which will be compared to yours before the goods are released. For some, you will need to provide a commercial invoice on the outside of your parcel to avoid delays just as you would for your wholesale orders.
When selling to a private person (B2C) in an EU country you may have to register for VAT in each country, but there is a distance selling threshold, this is different for different member states so you would need to look up the countries you sell most in first.
Small B2C customers may not understand all these extra delays and procedures so it may be better to direct them to local stockists within the EU as B2B customers are likely to be more understanding.
Make sure you are really clear on your product listings and in your terms, we may see a lot of returned parcels and reviews about having to pay the VAT and handling fee.
Here’s a flow chart that shows when you need to charge UK VAT and when you don’t. If in doubt about VAT your accountant should be your first port of call. They should be able to help you with this to make sure you stay compliant.
It may be easiest for you if you do a lot of trade with the EU and Northern Ireland to appoint a customs agent, this could be a fast parcel operator such as DHL or Fedex. There's some advice here on the government website.
What this means for your wholesale
You may want to increase your minimum order for EU/ROW (rest of world) stockist to account for the extra customs works.
One easy step is to avoid extra work each time you send an order is to include the HS codes and the country of origin for each product on your invoice. This way, you don’t have to prepare separate paperwork for your EU and ROW exports.
The shipping company you use will generally act as the customs agent.
If you are VAT registered you don’t charge VAT to the EU or the ROW, but you need to include it as zero VAT on your HMRC declarations and keep proof of export. Your customers abroad may need to pay duties (ROW), local taxes and a customs handling fees before the order is released to them in their country. If they are in the EU and your product is from a preferential origin they will only have to pay VAT and a custums handling/admin fees.
Even if you are not VAT registered, your EU customers may need to pay VAT and customs handling/admin fees before receiving their order.
The channel islands are not part of the UK for fiscal (VAT) purposes and may be zero-rated subject to meeting certain conditions.
Previously we did not have to charge VAT when shipping within the EU as long as we had the receiving business VAT number since we were part of the single market and the goods never crossed a customs border.
If you exhibit at a show in the EU and your products only leave the UK temporarily, you may not have to pay VAT on the goods return into the UK. But you may have to budget into your show budget that you need to export the products which may mean that you pay VAT and customs handling/admin fees in the country you are exhibiting in.
If it's a show that is not transactional it's my understanding that you don't need to have a visa but if you go to a market where you sell you may need a work permit/visa.
Selling and shipping to Northern Ireland
How Brexit affects your supply chain - buying from EU countries
The main thing to figure out is how much more expensive it will be to buy your products. Some larger suppliers may start to hold stock in a UK warehouse, and some may suspend shipping to the UK either permanently or temporarily to make sure they are compliant.
If you haven’t already contacted your EU suppliers to check with them, I urge you to do so now.
Make sure you also consider that you will have to pay import VAT for orders over £135 in value, plus a handling customs/admin charge when your order arrives here in the UK so your cost prices will be going up.
You don’t always have to pay this upfront as the UK has a postponement scheme set up to delay it, but you need to declare it in your quarterly VAT return.
Make sure your products continue to meet legal standards in all the countries you sell to. Next year the UK Conformity Assessed (UKCA) mark replaces the CE mark (from 1st Jan 2022).
If you are manufacturing products now that you plan to be selling beyond this date and are going to be selling both in the UK and EU, make sure you include both on your product labelling to be compliant when this takes effect.
If you currently hold an EU trademark in date, it will still be valid here in the UK if you filed it before starting the transition period in 2020.
If you filed during the transition period it wouldn’t be, and you will need to file for a UK one as well, and you will get priority.
If you are filing now for a trademark, you need to file separately for an EU and UK one.
For now, there are no changes as the EU and the UK and GDPR will continue to form part of the UK law. However, there’s a transition period of 6-months, and after that time, there may be some changes.
Travelling to the EU now come with restrictions and sometimes you may need a visa. The rules will depend on the country you are travelling to for business. The full trade agreement has a list of what you are allowed to do on page 741.
This will all get easier when we got our head around how to do it. If you don’t feel up for all the extra admin, I would consider finding a stockist in all your most popular EU countries and refer your B2C customers to them instead.
To make it easier and less stressful for you and allow you to focus on driving your business forward, I would highly recommend getting a good accountant as so many of the new rules are around VAT. Shipping and exporting won’t be that different from selling to the ROW so you may already have experience with this.
If you have any more information that I completely missed or noticed that something is not correct, please let me know, you can always find me over on Instagram, I’m @small_business_collaborative or drop me an email at email@example.com.