Written by: Annie Zygmunt
Following the original referendum in 2016, the then Prime Minister Theresa May signed the official treaty to announce the United Kingdom’s withdrawal from the European Union nine months later. This marked the start of Brexit – an act that changed the lives of thousands of people and businesses.
We will be taking a brief look at the changes that Brexit caused to the trading agreements, affecting the import of goods into the UK.
The arrival of Brexit meant the existing trade agreements had to be changed. With the UK no longer being part of the UK single market, a revised ‘Brexit deal’ had to be agreed upon to govern future trading relationships between the UK and the EU, within the newly negotiated Brexit agreements that have come into effect on January 1st, 2021. The new agreement does not give businesses the same level of freedom in argument of goods as was the case when UK was part of the EU.
The UK government has adopted various approaches to ease the strain and minimise disruption on its businesses. They did this by duplicating previous trading agreements that the country enjoyed when it was part of the EU trading block. This was done with the hope of creating continuity and certainty for UK businesses trading with the EU and the rest of the world. Some of the countries and agreements can be found on the gov.uk website under ‘UK trade agreements with non-EU countries’.
There are currently nearly 70 countries on that list, most of which have either full ratification or provisional application. Only four of the countries have bridging mechanisms where ratification or provisional application are not available at the moment.
The trade treaties have been agreed on and signed, making them official.
Well-established method used to bring agreements into effect ahead of entry – often used in international treaty practice.
Alternative means to ensure trading continuity when full ratification or provisional application is not available.
For example, Japan has full ratification, Iceland and Norway have a provisional application, while Kenya has a bridging mechanism.
Certain countries are still negotiating future trade arrangements, to ensure trade continuity. In the absence of any trade agreements, the UK has adopted its own rate of tariffs governing all imports into the country called UK Global Tariff (UKGT).
Recognising there could be bottlenecks and strain on businesses at point of import into the UK, the UK government also introduced Postponed VAT Accounting (PVA). The PVA is aimed at deferring the payment of import VAT for UK VAT registered businesses.
Businesses that are registered for VAT can use PVA as long as they’re importing goods into the UK. This means that instead of paying it immediately, they can account for their VAT on their VAT Return instead. Its purpose is to prevent impacting the business revenue while importing, and to defer the payment of import VAT to match the sales VAT.
PVA can also be used by UK VAT-registered businesses, who import business goods in consignment worth more than £135. These businesses now have to be registered for PVA before arriving at port and elect to use PVA on the customs declaration. All of the importers who are registered for UK VAT are eligible to use the PVA, as long as they make the appropriate entry. This will allow for imported goods to enter without up-front VAT payment.
These changes do not affect those who are non-VAT registered importers, and those who are required to continue to pay at the same time as customs duty.
Postponed VAT has plenty of benefits for the businesses aside from not having to pay the VAT immediately upon entry. The key benefit is the deferment of the 20% VAT cost that doesn’t need to be paid upfront.
Postponed VAT accounting is currently not be available for imported non-consignment goods with a value of £135 or below. There are other rules that apply to customers in the UK using online marketplace like Amazon, eBay, and Shoppify.
UK business will have to declare the VAT on their next VAT Return instead.
You can find more information regarding this matter on the Government website by clicking here.
Although not mandatory, it may be more cost-effective for business owners to use PVA – especially since it will help businesses avoid delays caused by their imported goods being held in customs until the VAT is paid. It’s also known to improve cash flow because of the PVA. Although there are many changes happening in terms of import of goods, there are trade agreements being put in place to minimise disruption.
Anyone with any questions in regards to this topic can contact our Specialist Ecommerce team which can be done by calling us on 0121 726 2861
All the information below is correct at the time of writing (31st August 2021)