Brexit | Has the Drama Finally Subsided?
The United Kingdom (UK) officially left the European Union (EU) on January 31, 2020, in the midst of an extended period of confusion, back-and-forth negotiations and unanswered questions for many businesses and individuals that work and live in the area. With an 11-month transition plan that ended on December 31, 2020, we can now finally rest a little easier, knowing that some of the impacts can be directly tracked and measured. We’ve summarized some of the key effects of Brexit below, and how US companies may be affected moving forward.
What are the major impacts of Brexit?
The two major changes that occurred at the end of the transition period are:
- UK left the customs union
- UK left the Value Added Tax (VAT) regime
While UK left the customs union, the UK and the EU brokered a deal late in December 2020 to have zero tariffs in regards to the trade of goods between UK and EU. Tariffs would not be charged if goods were produced or manufactured in the UK. Enforcement comes via new regulatory checks, including rules of origin and local content requirements. The freedom of movement came to an end due to the reintroduction of temporary work visas for employees, which will significantly impact the UK’s large service sector.
Customs implications to US businesses?
US businesses that have historically utilized companies in the UK as an entrance into the EU could be facing additional tariffs. US businesses would be required to pay tariffs when the goods entered the UK and then again when they entered the EU meaning additional costs to US businesses.
The UK and US have been working on a trade agreement, but with COVID-19 still creating significant uncertainty and the change in direction under a new US president as he implements his policy, there has been a delay in completing an agreement. In addition, the UK has their hands full working on numerous trade deals due to EU trade agreements no longer applying to the UK.
VAT implications to US businesses?
As the UK is out of the EU VAT regime, the UK implemented a new ecommerce VAT as of January 1, 2021. This means all US businesses that are selling to UK consumers will be subject to import VAT and be required to file quarterly returns. Failure to register would mean goods stopped at the border and potential penalties.
While the UK is out of the EU, there are still many questions to be answered as countries navigate this post-Brexit world. The Barnes Dennig international tax team will work on keeping you up to date on major developments. For additional information please call us at 513.241.8313 or click here to contact us. We look forward to speaking with you soon.