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How will Brexit impact your business?

Having trouble understanding the outcome of Brexit? You are not alone. But let us walk you through what actually happened in practice. After 4 years of laborious negotiations, the UK and EU have, on 24th December 2020, finally agreed on the terms of the Brexit deal. Here are some of the key points that may affect your business*.

Goods

The current deal confirms “zero tariff, zero quota” on goods which means that there will be no tax or limits on the amount of goods that can be traded between the UK and EU from 1 January 2021. That said, there is always a risk that this status could change if the relationship breaks down.

You: Well that sounds great! Then we can just continue “as is”, right?

Us: Yes and no, unfortunately there is a significant change in relation to the VAT rules. In broad terms, under the new rules, VAT is collected at the point of sale rather than the point of importation.

You: What does that mean?

Us: That means that EU businesses exporting to the UK must register for UK VAT and account for it to Her Majesty’s Revenue and Customs (HMRC).

How this would impact existing agreements?

It is therefore VITAL for you to:

  1. Check which law governs the agreement (UK or specific EU country) to ensure future compliance in the event of a change in requirement;

  2. Review  the agreement to see if any of the terms (whether implied or explicit) are reliant on any EU derived law;

  3. UK businesses reliant on suppliers from Europe and European businesses exporting to UK will need to ensure that they adhere to the new VAT rules and be registered with HMRC for UK VAT; and

  4. Keep an eye out for any changes in the law!

How could this impact your business?

Whilst it may be “zero tariff, zero quota” on the import and export of goods between the EU and UK for now, it is anticipated that there will be an increased level of customs and border checks, paperwork, regulatory and administrative requirements to be satisfied. Businesses should therefore be aware of the potential increase in time and expenses required to deal with the additional red tape.

The deal also includes a “rebalancing mechanism” to ensure a “level playing field” in the event UK decides to exercise its rights to set its own standards in areas such as environmental standards or labour law, thereby increasing its competitive advantage. There are a number of potential risks stemming from this right as UK may simply decide to bear the risk of having restricted access to the European market, if it decides to diverge from the European standards. Most importantly, the UK will no longer be subject to any EU rules nor the European Court of Justice.

Many businesses, especially SMEs, have been caught out by the new complex VAT rules from 1 January 2021 and have not been able to export goods from EU to the UK until the administrative aspects have been dealt with accordingly.

Services

Compared to the agreed position for goods, the terms relating to the export and import of services were minimal and therefore, whilst unclear at present, could potentially result in considerable changes. UK businesses offering services have, as of 1 January 2021, lost their automatic right of access to EU Markets and vice versa. There will also no longer be an automatic recognition of professional qualifications which will impact qualifications held by, for example, doctors, chefs, architects, lawyers, vets, pharmacists etc. Conditions of access and restrictions imposed will be dependent on individual deals to be struck between UK and each country within the bloc.

How this would impact existing agreements?

It is therefore VITAL for you to:

  1. Review existing agreements to see if reliant on any professional qualifications; and

  2. Keep a very close eye on deals between the UK and another European country.

How could this impact your business?

Are you offering services to the UK? Are you exporting services from the UK to another EU country? It may become harder for such services to be “sold” between countries. Whether or not qualifications can be recognised “cross-border” would depend on the agreements between each EU country and the UK.

Please note that a vast number of details and issues remain outstanding and will hopefully be covered under a separate “adequacy” decision due early this year (2021), including areas such as data protection and data flow, financial services and so forth.

*Please note that the information in this article is for information purposes only. It is not exhaustive and does not constitute advice. Before making any decision, please ensure you obtain proper and complete advice before proceeding.