With all that's happened with the global pandemic, Brexit seems to have lost the headlines but with the EU trade deal finally complete, what does post-Brexit really look like?

 

The post-Brexit world

Five years since the vote and 6 months into the UK’s departure from the EU’s Single Market and Customs Union has brought significant disruption to trade, particularly to UK exports to the EU, due to new border rules and red tape. Despite the formal agreements, relations have continued to be strained as companies importing and exporting goods face a raft of new paperwork, including customs declarations and border checks.

What's the cost to businesses importing and exporting?

The UK’s Brexit agreement has kept tariffs at zero but creates new barriers to UK-EU trade that affect goods and services. These are the red-tape barriers that cause truck queues at Dover, make exporting fish difficult and stop musicians touring the continent. The red-tape barriers are very expensive – costing an average 8-9% for both goods and services, and exports and imports. That’s around £25 billion a year on UK exports of just under £300 billion to the EU (2019 figures). This is partly a teething problem, but also a long-term trading cost concern for businesses. Lower sales and profitability may be manageable short term for some, but others have already thrown in the towel as the combined impact of the pandemic has made the conditions unsustainable. Most EU-UK trade will suffer because the bureaucracy creates difficulties for customers and suppliers.

 

58% of UK exports to the EU are goods

There are over 140,000 smaller firms which export and employ over two million people (about 30% of goods exports). They play an important role in supply chains but are relatively poorly equipped to handle the new stringent customs processes. UK exporters to the EU now have to prove the origin of their goods, without which they are subject to tariffs. Complex rules decide whether a product is sufficiently ‘local’ to qualify as tariff-free - resulting in goods being sent back to the UK seller due to incorrect documentation.

20% of smaller firms have temporarily stopped exporting to the EU

A recent survey by Hacker Young Chartered Accountants found that 20% of smaller firms have temporarily stopped exporting to the EU to avoid trade costs and paperwork. This is despite the benefit of 12-month relaxations to make ‘rules of origin’ easier to apply and that some traders are able to self-certify the origin of their goods.

 

UK exports to the EU are subject to the  ‘rule of origin’ clause

As part of the Brexit deal UK exports to the EU are subject to the “rule of origin” clause which means that import duties are payable if a some or all of the product has originated from outside the EU, along with the VAT.

Access to the zero tariffs and quotas will depend on whether the goods meet the Rules of Origin required in the agreement to qualify as ‘local’. Businesses will have to identify the full origin of their goods as well as provide additional paperwork in order to qualify.

However, many UK SMEs exporting to the EU have much of their supply chain based outside the EU, meaning they have been caught out by the “rule of origin” clause.  EU customers will inevitably look elsewhere if it means they can avoid paying import costs and UK businesses could see part of their client base evaporate.

In short, it's complicated - but the good news is we're here to help!

Exactly what licenses are needed or what duties must be paid depends on what is being exported, its value, where the product originates from and to which country it is being sent, according to government guidance. If you need help with your imports or exports, please give us a call - and we'll do our best to make things feel a little easier.

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