Brexit: changes in customs procedures and VAT with the UK’s withdrawal from the EU


On 24 December 2020, the EU and the United Kingdom reached a last-minute Trade and Cooperation Agreement (TCA) on their future relationship after 1 January 2021, which marks the end of the transition period. The Trade and Cooperation Agreement consists of three main pillars: a free trade agreement, a new partnership on security cooperation, and a horizontal agreement on governance to ensure the proper application and interpretation of the agreement.

The Free Trade Agreement covers not just trade in goods and services, but also a broad range of other areas in the EU’s interest, such as investment, competition, state aid, tax transparency, air and road transport. It provides for zero tariffs and zero quotas on all goods that comply with the appropriate rules of origin. This means that goods must contain a certain amount of EU or UK content to avoid tariffs, amount which is outlined in the annexes of the Agreement. Other products which are fully manufactured in third countries, or products which are made with a majority of content imported from a third country, will face tariffs. For example, a British retailer selling on the EU market clothes imported from a third country will have to account for tariffs twice: once when the imported garments enter the UK, and once when they enter the EU.

It is particularly difficult to prove the origin of complex products containing parts sourced from all over the world. In order to ease administrative burden, the TCA sets a one-year transition period during which exporters are not required to have all the evidence supporting their origin claims available immediately. However, businesses still need to ensure that their products comply with the rule.

Customs rules changes

As a result of the UK leaving the Customs Union, stricter customs regulations apply to packages entering and leaving the UK and the EU.

Customs declarations need to be filled when importing or exporting goods to/from Great Britain, and security and safety data may need to be provided in addition. Retailers selling from the EU to the UK will need to have an EORI number, assigned by the Member State in which they operate. The full outline of changes related to customs and taxes on the EU side can be found on the European Commission website.

As regards VAT collection, the new set of rules can be split in two main strands: goods sold to the UK, located outside of the UK, and goods sold to the UK and located in the UK at the point of sale (sold by an overseas seller through an online marketplace).

Goods sold to the UK where the good is located outside the UK

For goods sold to the UK where the good is located outside the UK, EU customers are no longer charged the UK VAT for consignments not exceeding £135 in value, but must pay local VAT in their country of residence. The new rules will also abolish the Low Value Consignment Relief, which relieves import VAT on consignments of goods valued at £15 or less.

For goods sold by overseas sellers through online marketplaces (OMP) based in the UK, UK VAT is due at the time the sale of goods takes place. The significant change is that marketplaces will be required to collect and account for VAT on behalf of their sellers. For sellers sending goods from the UK to the EU, the EU has delayed the introduction of this obligation to 1 July 2021. Whereas, for goods sent from overseas and sold directly to UK consumers without OMP involvement, the sale will be deemed to take place in the UK and so liable to UK VAT.

Goods sold to the UK where the goods are in the UK

The second strand of the new measures applies to goods of any value sold to UK consumers where the goods are in the UK at the point of sale and are sold by an overseas seller with an OMP facilitating the sale. In this case, at the point the goods are sold to the customer, the overseas seller will be deemed to make a zero-rated supply of the goods to the OMP. The overseas seller will also be eligible to register for VAT in the UK and reclaim any import VAT it has incurred in the course of importing the goods, subject to the normal rules for VAT deduction.

One exception to the new set of rules is Northern Ireland. For goods between the EU and Northern Ireland, the existing intra-EU rules for acquisitions, dispatches and distance selling will continue to apply.

The full outline of changes related to VAT for imports of goods from the EU to Great Britain can be found on the UK Government website.

Although the TCA allows for the use of simplified forms by businesses eligible to use trusted trader schemes in order to minimise costs and time, many disruptions with delivery of goods have been reported since 1 January 2021, with customers purchasing products from the UK being asked to pay additional bills for VAT and customs declarations. Additionally, numerous retailers based in the UK have stopped shipping to the EU altogether, as have some EU businesses to the UK.