Introduction
The end of the transition period is the 31st of December and with that change all the current rules about trade between the UK and the EU 27 countries and the Rest of the UK and Northern Ireland will change.
As at the date of writing this no agreement has been reached, so in many areas there may be changes, but by looking at what has been agreed, the latest government advise and seeing how the EU trades with other countries we have detailed the following advise to ensure your company is prepared for this huge change.
Our primary concern is ensuring that all our customers are able to produce labels, customs forms and get their orders to their customers. Here is what you need to know.
Getting Ready for Brexit Checklist
- Ensure you have an EORI Number and that is added to Despatch Cloud
- Get a European EORI number from an EU country
- If you trade between the rest of the UK and Northern Ireland get an EORI which starts with XI
- Ensure all your products have a HS code added to them in Despatch Cloud
- Ensure you can provide the correct customs documents on all order (B2C as well as B2B)
Customs forms
All packages going to the EU from the 1st of January 2020 will require a customs declaration. Some couriers will allow you do this electronically, not just for the EU but now also for other countries including the USA. Despatch Cloud is working to ensure these are supported.
Where this is not supported then customs forms in the form of CN22 (Under £270), CN23 (Over £270) and Commercial Invoices will be required. Despatch Cloud supports these but relies on accurate data from our clients to ensure that these legal forms are correct.
Customs forms require
- HS code
- Correct weight
- Price of each item
- An EORI number
- Country of Origin
- Company details
Customs Forms for Trade Northern Ireland <> Rest of UK Trade
As of November 2020, it is not confirmed if customs documents will be required when sending items between Northern Ireland and the rest of the United Kingdom. The UK government believes that they will not be necessary while the EU take an opposing view to this. Under the Northern Ireland protocol EU tariffs will be charged on exports from the rest of the UK to Northern Ireland (though the UK government has indicated that these will be refunded) so it seems that this would be impossible unless customs declarations are used. What has been confirmed is that companies who “export“ from the rest of the UK to Northern Ireland will require a new Northern Irish EORI number starting with XI (See section on EORI Numbers below).
EORI (Economic Operator Identification) Numbers
EORI numbers are a unique identifier for companies (or individuals) who trade internationally. These are used by customs authorities to process customs declarations, and exchange information between authorities. The EORI number needs to be unique for every country you are established in.
New EORI Numbers for Northern Ireland – Companies Based in Northern Ireland
If you are a Northern Irish company who trades with the rest of the UK you will require a new XI EORI number as well as your GB EORI number, while you may be able to use your current GB EORI number to trade with the Republic of Ireland (please see section below on EU EORI numbers).
New EORI Numbers for Northern Ireland – Companies Based in the Rest of the United Kingdom
The UK government website states that “If you move goods to or from Northern Ireland, From 1 January 2021 you’ll need an EORI number that starts with XI”
So it seems likely that mainland UK companies will also need a new XI EORI number in order to trade with Northern Ireland.
XI EORI numbers are only available to companies who have a GB EORI number, so apply for one now if you need one.
What EORI Will be Required for Trade Within the EU?
While the UK government has not given definitive guidance on this, it is clear from other countries outside of the EU that such as Norway that a EORI from an EU country will be required. After the end of the transition period the EU will no longer recognise UK EORI (those starting with GB) and therefore and EORI number from a EU country will most likely be required. This may change given the negotiations are still ongoing but you should be prepared in case these are required. The Wrong EORI number will likely result in the shipment being delayed or refused.
Harmonised Systems (HS Codes)
If you are unable to correctly classify your export items against the HS code schema, you will pay the incorrect duties, face top-up taxes and penalties, and provide a poor experience for customers due to delays in delivering items and possible demands to pay taxes and additional processing fees.
The UK has not completed formulating its post-Brexit commodity code scheme, as of November 2020 so it’s confusing in this region. The tariffs to be paid, are dependent on the outcome of trade negotiations with the EU so could range from zero tariff free trade to World Trade Organisation (WTO) standard terms.
In order to clear any goods through UK or EU customs, the product codes will have to be included in the customs statement that you will need to provide. This will explain the amount of taxes you should pay on each item line, including VAT and the tariffs which should be applied.
How are HS Commodity Codes Functioning?
HS codes is a global standard that identifies each product in great detail depending on product type, the materials used and the method of production. It is maintained by the World Customs Organisation based in Brussels.
The HS code is made up of
6 HS Code digits: split into 3 sets of 2 digits, the first two digits are the Chapter (52 for Cotton Fabric for example), the next two are heading (09 – Woven fabrics of cotton) and the last 2 digits are the Subheading (42 – Denim).
EU additional digits: The EU adds up to an additional 8 digits to the HS code, giving a potential 14 digit code.
2 digits of the CN (Combined Nomenclature) heading;
2-6 digits of the subheading of the TARIC (Integrated Tariff of the European Communities). The most popular one is 10 digits. But under the additional TARIC code, it is possible to add 4 more.
Looking for Your HS Codes?
https://www.gov.uk/trade-tariff
HS Codes for Customs Forms
Despatch Cloud allows you to store HS codes against each SKU in your inventory, you can use the 6-digit HS code or the full 14 digits. Post and courier services will require all packages to have a HS code for export, either to the EU or to the rest of the world including the Channel Island and the Isle of Man.
It is very important that the HS codes are accurate. Using the wrong HS codes can result in the wrong tariff being applied, delays or rejections and possibly even criminal charges for tax evasion. As the exporter you are legally liable for all the data you send.
Effect on VAT
Import VAT
Currently if you are UK VAT registered and buy commercial products from an entity in the EU, these are sent to you without VAT. This will change on the 1st of January where the UK government will levy UK VAT on imports into the UK
You will need to agree with your supplier who will pay for these prior to being sent.
Export VAT
Bare in mind that if you are sending items to consumers in Europe you now should not charge UK VAT on these exports from the 1st of January. This means that on items valued at €22 they will be exempt from tax & duties (note that this low-value consignment VAT exemption is due to end in 1st of July 2021). If they are above VAT & Duties will need to be paid. Either the courier will deliver a note asking the customer to pay these amounts plus a service fee, or your can arrange for them to be paid before hand by the courier or agent.
Getting a notice to pay extra for the goods when they arrive is a poor customer experience so you may wish to use a Deliver Duty Paid (DDP) service.
VAT Thresholds
EU countries require companies with revenue above a threshold to register for VAT in that country, this is €35,000 for most countries, and €100,000 in Germany, Luxembourg and Netherlands. Currently UK companies can declare and pay VAT via their UK return. In future this will not be possible, and the company should register in each country they operate in.
VAT Rules for Trade Between the Northern Ireland and the Rest of the UK
Sending B2C from the rest of the UK to Northern Ireland will remain the same, with the UK rates of VAT being applied.
B2B Northern Ireland to the Rest of the UK
Exporting from Northern Ireland, Treated as a UK sale so UK VAT rate applied
Importing into the UK, while technically now an import the UK government has stated that it will treat as a domestic transaction for tax purposes.
B2B Rest of the UK to Northern Ireland
Exporting from the rest of the UK, No VAT will be applied to sales to the VAT registered entities in Northern Ireland
Imports to Northern Ireland will attract EU VAT due but this may be deferred via Postponed Accounting in UK VAT return. Depending on the outcome of negotiations there may be EU duties due. Import declaration will need to be made go to the new UK TSS customs service https://www.gov.uk/guidance/trader-support-service website for more information on this.
B2B EU to Northern Ireland
Will be zero rated between VAT registered companies, same as it is currently
The Irish Border
Special arrangements will be in place for intra Ireland trade, this is beyond the scope of this document.
Other Aspects of the New Trading Relationship With the EU
Rules of Origin
The economic nationality of the products you produce or sell. If there is an agreement then UK produced products will require proof they were made in the UK, which separate documentation of all the components which were made overseas. Products purchased from outside the EU and UK and then sold to the EU may still attract tariffs.
Rules of origin are highly complex and professional advice may be needed.
In the UK your local Chamber of Commerce can issue a certificate of Origin
Safety and Compliance Certification
The EU will require that all products imported into the EU will comply with EU regulatory standards. There will likely be divergence over time and some imports to the EU will require a EU declaration of conformity (DoC) where your company or authorised representative will sign to legally confirm that the product in question confirms to all the applicable EU laws.
This is a complex area and you should seek professional advise on this.
Glossary of Terms
| DAP | Delivered At Place Seller takes all risks include but not limited to Duty, taxes and Clearance |
| DDP | Delivered Duty Paid, Import Duty, Taxes and customs clearance paid by the sender |
| DDU | Delivered Duty Unpaid, means that the buy needs to pay the import duties, and taxes |
| Duty | A tax levied on all of a certain products whether produced domestically or imported |
| CIP | Carriage Insurance Paid, Seller covers all risk and cost including customs duties to the buyer |
| CN | Combined Nomenclature, A 2 digit code to classify goods based on the EU specific criteria |
| FOB | Free on Board, Seller is responsible for all risk and charges from when the point of origin |
| HS | Harmonised System, International system to classify goods |
| Paperless Trade | |
| TARIC | TARif Intégré Communautaire; Integrated Tariff of the European Communities, a system to show the rules which apply to a specific product. The TRAIC code is added to the HS code in Europe |
| Tariff | A tax in imports or exports between states |
