When the UK voted to leave the European Union, it left a rupture.
Where there once was a free flow of goods, services, and labour between the UK and the EU, there is now a border — and with it the usual trappings of customs, tariffs, and regulations.
This comes as no surprise — Brexit has made trading in the UK a far more complex, expensive, and arduous process. Particularly for EU companies.
- Brexit has given price advantages to UK sellers
- Continuity in new UK regulations, but divergence in agriculture and immigration
- Customs duties will only be paid (by the customer) on imports originating outside the EU
- Businesses selling in the UK must charge the customer for VAT (Value Added Tax) and collect it on behalf of the British government
- Domestic UK eCommerce sellers are thriving because of Brexit
Brexit gives advantages to UK sellers
Firstly, EU companies need to consider whether selling to the UK is even worth the trouble.
The British government wishes to ensure that UK businesses aren’t disadvantaged by tariff-free imports. This means that every foreign company wishing to do business with the UK has to collect VAT (Value Added Tax) on behalf of the British government: to do this, companies must register their business for VAT and apply for a GB Economic Operational Registration and Identification number (GB EORI). We’ll go into more detail later on in this article.
You may be priced out of the market. Take these bicycle companies — Dutch Bike Bits ceased trading with the UK on account of these changes, and Brooks — a saddle-making company — also ended their trading relationship with the UK as a result.
Large corporations could weather the storm. But for SMEs already struggling to maintain a healthy cash flow, the price may well be too heavy — as we’ll explore later on, if your goods didn’t originate in an EU member state, your customer will be slapped with custom duty.
How will Brexit affect regulations?
Leaving a free trade community creates an initial vacuum that can only be filled by a new regulatory system.
That being said, there has been major continuity in certain policy areas. EU antitrust legislation, consumer protection, food safety standards, and environmental policy have all been incorporated into UK law.
Indeed, the only noticeable changes boil down to replacing the names of EU institutions with those of UK institutions. The major divergences are found only in immigration and agriculture.
In terms of agriculture, these divergences are purely theoretical — for now. For example, the UK can theoretically diverge from the EU’s Sanitary and Phytosanitary (SPS) standards. While this hasn’t happened yet, there is a fear that the UK would accept lower quality imports — like chlorinated chicken from the USA — in an effort to make trade deals with countries outside the EU. Sellers should be aware that the UK government recently quashed an attempt to protect standards in the Agriculture Act 2020.
The UK’s data protection laws and guidelines are based on the General Data Protection Regulation (GDPR) — the EU’s data protection framework.
The GDPR still applies. While initially implemented by the European Union, the new UK GDPR mirrors the EU version, which was passed into British law on 1 January 2021. UK-based companies must therefore align themselves with UK GDPR rules.
Essentially, the principles remain the same. The difference lies in the fact that any regulatory changes will be made by the UK — not the EU. For this reason, you should keep an eye out on the ‘Taskforce on Innovation, Growth and Regulatory Reform’, which has proposed a whole spate of potential reforms — including the removal of user permission for analytics cookies.
Moreover, you may have to update your privacy notices, data protection impact assessments, and data subject access requests to detail the UK as an independent nation.
Under the terms of the UK-EU Trade and Cooperation Agreement, a free flow of personal data from the EU to the UK was continued for 6 months, pending an ‘adequacy ruling’ from the European Economic Area. Since then, the EU has ruled that UK policy is adequate and this decision will remain valid for 4 years.
New obligations for EU businesses
Under EU law, the responsibilities of companies reflected their place in the supply chain. Now, EU companies that buy goods from the UK for the EU market become importers, and those who distribute products to the UK become exporters.
This entails a whole set of additional obligations, as of January 2021.
From 1 January 2021, all imports and exports going in and out of the EU will be subject to customs — owing to the UK’s new ‘third-country market’ status.
The payment of customs duties only applies to countries outside of the EU. However, this only applies to items valued at over £135. The haulier pays HMRC on behalf of the customer, and the customer pays them back — usually on delivery. The fee ranges from 0–25%. For example, a pair of trainers is taxed at a rate of 16%.
Because of this, many firms have started charging handling fees to cover the costs of extra paperwork and customs duties. Royal Mail is charging an £8 fee, while DHL is charging 2.5% of the overall customs cost.
While the withdrawal agreement includes the removal of tariffs and quotas between the UK and EU, this does not mean that there are no barriers.
Any country outside the EU is now given a ‘third country status’ — therefore, they will be subject to the new UK Global Tariff. If you cannot prove that your goods originated in the EU (for example, a Dutch coffee company that imports coffee beans from Colombia) you will pay customs duties. In this instance, imported decaffeinated coffee from Colombia would be charged customs duty at a rate of 8%. You can check how much you will have to pay here.
Hauliers and commercial drivers have to provide security declarations, permits, and licenses. Transporting goods like live animals, foodstuffs, plants, or feed will be subject to rigorous biosecurity checks and inspections — ensuring they comply with SPS measures implemented to stop the spread of diseases and pests. These checks will be carried out at designated border check-posts (BCPs).
However, the government has postponed border checks on food imports — for the time being at least — blaming food shortages in supermarkets, and the global pandemic. Any changes to this policy will be announced in 2022, so keep an eye out.
The importance of being VAT compliant
As previously stated, new VAT regulations have been introduced — the UK has been applying these since 1 January 2021, while the EU started applying them from 1 July 2021.
As you will see, these regulations deliver a hammerblow to cross-border trade.
Register for VAT
EU businesses are now obligated to collect VAT on behalf of the British government. So be sure to register your business for VAT in the UK. On top of that, the government will charge a fee for this service-amounting to well over £1,000.
There are new VAT thresholds. For items valued up to £135, VAT is no longer taken at the point of importation — but at the point of sale (POS). This must be done by either the seller or the online marketplace. Items valued over £135 have import VAT collected along with other fees at customs. If you store your products in the UK, you’re obligated to collect VAT at the POS.
If UK customers import your goods, let them know of customs and other fees in your terms and conditions — in this case, the customer pays the VAT, not the EU business.
This new arrangement includes the abolition of Low Value Consignment Relief —which relieves import VAT on goods valued at £15 or less.
Get a GB EORI number
To import or export goods into the UK, you need a GB Economic Operational Registration and Identification number (GB EORI). While the application process only takes 10 minutes, it can take up to 1 week to receive the number.
All VAT-registered businesses were automatically given a number — you may have already received it.
It is advised that you use an intermediary (broker, customs agent, Fast Parcel Operator) to help you meet the customs requirements, including information on the value and origin of goods.
What does Brexit mean for eCommerce sellers?
Brexit is clearly revving the engine of domestic eCommerce sellers — foreign eCommerce sales declined for the first time ever in 2020.
Greater shipping times and the additional VAT costs could discourage UK customers from cross-border purchases. Worse still, MasterCard and Visa will significantly increase their charges on cross-border payments when UK consumers buy from EU businesses.
Managing your inventories
Amazon’s new policies are something to consider. Amazon recommends you set up two separate inventories — a UK inventory, and a Pan-EU inventory. This means you’ll avoid longer delivery times, bigger costs, and the possibility of your goods being stranded en route.
Protecting your brand has become more important too. With Amazon’s Brand Registry service, you need to register your EU and UK brands separately, reducing the likelihood of potential copyright infringements.
The freedom of cross-border trade is here
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Author: Ed Hugo
Illustrations: Kate Faldina