After December 31, a lot will change in terms of pretty much everything for businesses across the UK and EU businessmen exporting their goods to the UK. The UK will complete its Brexit transition period with the last day of 2020. So what good will the Brexit trade deals bring in?
The UK government is trying their best to reduce the impact of Brexit trade deals on the overall economy. This is the area which is set to transform big-time in terms of new taxes and duties. After December 31st, duties and taxes on the goods coming into the UK from the EU will not be the same. Also, products that are enjoying 100% free access to the UK market will be slapped with taxes, VAT, and custom duties. Traders will have to readjust their supply chain to maintain their cash flows.
How will the taxes and customs duties change?
New duties and tax regime will come into place for the goods coming from EU countries. The World Trade Organization (WTO) will determine the effects of new duties. This will be agreed with the individual countries.
Common External Tariff (CET)
Common External Tariff (CET) is applicable on the goods coming outside the EU countries. The goods coming from outside the EU are processed under CET. Under the CET, the rates of tariffs are different for different products depending on where it is coming from.
The tariff for EU countries is common and this will change now.
UK Global Tariff (UKGT)
The UK is replacing the Common External Tariff (CET) with UK Global Tariff (UKGT) for all countries. This will be applicable on all tariffs across the board.
Some people may think that this is bad news but it’s not. UKGT, when compared to the CET is far more flexible and offers a great incentive to the businesses. UKGT is offering reduced tariffs at 5.7% which is less. Currently, CET is charging at 7.2%. Through UKGT, 47% of the goods will get a tariff-free entry. With CET it’s only 27%.
Pricing after Brexit?
Surely, there will be pricing changes. The consumer may experience this effect directly but not too much. The UK government is placing different measures to address this. Businesses that used to pay 0% duties on the goods coming from the EU will now have to pay the custom duties. There will be additional duties after December 31st.
The World Trade Organization will have an effect on the prices of the goods. UK will have to make individual deals with the EU countries to determine the taxes and duties. For example, if they sign a mutually agreed free trade agreement with individual EU countries, then there will be less effect on the products.
With the current system and absence of agreements, there will be only 44% of imports that will get tariff free access. This will hit the pricing as 100% products coming from the EU used to be free.
Trade transition regime and custom duties
The UK government will give 6 months to the businesses and traders to adjust with the new system. This will give the necessary time to the importers to make custom declarations.
You can get some time to equip your business with a new system to make adjustments. Some key pointers of this regime involve:
- As an importer, you can defer duty and any related paperwork until July 2021.
- After the end of the transition regime on July 1st 2021, you will have to make a customs declaration on your imported goods. If you import goods from the EU, you will have to pay duties and customs.
The UK businesses only involved with EU imports will have to make changes to do this. This involves obtaining the software to access The Customs Handling of Import and Export Freight (CHIEF) system. The CHIEF system records the custom declarations on the goods coming into the UK from land, air, and sea.
HMRC is pretty strict about compliance and it will cancel the arrangements with the businesses having bad track records.