What British businesses need to know about UK exports to the EU after Brexit.
Why Portugal could be the solution to the Brexit VAT & export nightmares hitting UK based businesses hard.
In this article we explore the business of exporting to the EU after Brexit and outline a solution for mid-sized businesses in the UK to distribute across Europe smoothly.
No more Brexit exporting headaches and the icing on the cake… potential savings on corporate tax.
How has Brexit impacted UK businesses that export to the EU?
Relocations, closures, stockpiling, exporting and logistical nightmares – businesses exporting to the EU from the UK are being hit hard.
In a referendum on 23 June 2016 the UK voted to leave the EU. Being a full member of the EU meant that Britain was able to function as a single trading arm with no tariffs or border checks and a combined VAT system.
A Brexit free trade deal with no goods tariffs or quotas was announced on 24 December 2020.
From 1 January 2021 the Brexit transition period came to an end and the business of exporting goods from the UK became a logistical and financial nightmare.
Clients in the EU are faced with heavy import taxes on receipt of UK goods and traders are struggling with the complexities of Brexit VAT. Resulting in delays at the recipients’ end and a poor customer experience not likely to encourage further purchases.
UK businesses have been struggling with the complex new rules and getting lost in the sales tax minefield. The steps to operating in the EU provided by the UK government look simple enough. In theory perhaps, but in practice, it seems they are not.
What has changed if I export goods from the UK after Brexit?
UK businesses exporting goods to the EU will now need to meet certain customs compliance obligations.
Here are the essential things you need to know:
- The exporter of record must be established in the UK for customs purposes. If the business intending to export does not meet this condition, it is possible for an agent or third party to act as exporter of record.
- The exporter must complete an export declaration.
- The exporter must provide key documents to their freight forwarder e.g. the road consignment note, copies of export licenses and the Movement Reference Number from the export declaration.
Brexit commodity codes – You need to accurately match your goods to the right commodity code depending on the category the product falls into.
There are around 5,000 different commodity groups and it is the responsibility of the trader to ensure they’ve selected the appropriate one. If customs believe goods have been “misdeclared” in an appropriate category, goods can be delayed and ultimately a different tariff rate might be applied with possibly penalties imposed too.
There is not one single tariff rate for each commodity group. A range of different tariffs can apply depending on where the goods originate and in some cases, on who is the exporter.
Most tax authorities publish online their commodity codes for you to match to your products. The UK has a Trade Tariff tool online. You can use the UK’s HMRC’s Tariff Classification Service to get non-legally binding classification advice. HMRC will respond to your email within five working days.
How will Brexit impact the supply chain for businesses exporting to the EU?
If you are a UK business exporting goods from the UK to the EU it might be beneficial for you to rethink your supply routes.
Demand for UK production is falling, tariffs and delivery times are unpredictable and the VAT on exports is complex and costly. Many companies are moving from the UK to other EU or international suppliers. Or relocating their distribution centres and warehouses to the EU.
There are many tax advantages to exporting from outside of the UK and perhaps bypassing it altogether. If most of your international customer base is in Europe you might want to consider Portugal for your warehouse and distribution needs.
Opening a branch in Portugal in 2021 is not a complex procedure and with the right structure can be very advantageous from a tax point of view. Our accounting specialists can help you set up your branch/distribution centre in Portugal. We provide you with strategic tax planning and accounting services that could deliver considerable tax savings for your company.
How much VAT do I have to pay when I export goods from the UK to the EU?
VAT after Brexit – Before leaving the EU the UK was part of the EU’s VAT world making it essentially invisible.
From 1 January 2021, the distance selling thresholds will no longer apply to UK companies. The company exporting goods from the UK applies VAT at the zero rate and the customer will be liable to pay the import VAT and customs duty – possibly at the border.
When exporting goods outside of the UK, you may be able to charge customers VAT at 0% or ‘zero rate’, provided certain conditions are met. The conditions are different depending on whether you’re exporting directly or indirectly:
- Direct exporting – where you export the goods in your own vehicle or through a company employed directly by you
- Indirect exporting – where your overseas customer arranges for the collection of your goods on your behalf
A full breakdown of VAT rules for exporting goods from the UK can be found at the Government’s exporting guide.
Setting up a branch of your UK business in Portugal
Portugal provides an excellent foundation for setting up a branch company with a stable economy and a range of financial incentives aimed at foreign investment.
Establishing a branch company here requires adherence to the Guidelines for Multinational Enterprises – Corporate Social Responsibility, which regulate branches setting up in Portugal.
The branch company must set up a Portuguese bank account and appoint a chartered accountant to handle the accounts of the branch.
You will need the services of a lawyer (preferably one that is working closely with your accountants) to set up the company and deal with any lease contracts for your office or warehouse, and employer/employee contracts.
We have seen an increase in enquiries from UK businesses looking to relocate or set up a branch of their business specifically for exporting across the EU since January 2021.
Our specialist corporate tax team have been working with UK businesses (with a turnover of more than £500k) to design a solution that ensures:
- Smooth distribution across the EU
- No more delivery delays
- No heavy import taxes for clients on receipt of their goods
And the silver lining?
Up to £100k (specific criteria apply) in corporate tax savings each year and up to 12% for some companies.
Our team can analyse your operational strategy and provide you with a step by step, tax compliant and stress free solution.
No more Brexit export headaches. Portugal could be your silver lining.
Our team provides cohesive international solutions to our clients to help them grow their business and keep tax liabilities to a minimum.