Brexit: Trade Agreement – UK & EU’s ‘New’ Relationship

published on 4 January 2021 | reading time approx. 3 minutes

On the 23rd June 2016, the UK voted to leave the EU. After 1,646 days of negotiations, discussions and much political posturing finally on the 24th December 2020, a Trade & Cooperation Agreement (“TCA”) was negotiated between the UK and the EU.

At 11pm on the 31st December Great Britain will leave the EU Customs Union and The Single Market.

The European Commission have made an agreement without the approval of the European Parliament, and therefore MEPs are understood to reconvene and ratify the deal early in 2021.

Parliament reconvened on 30th December to ratify the deal and this has now passed through parliament! 
 

Tariff Free Trading

• The EU and UK have agreed a zero tariff and zero quota deal – unseen previously with any other trading partner.
• This zero tariff is only applicable to “originating” goods, ensuring that goods meet relevant origin requirements before being applicable to the zero tariff between UK and EU.
• “Rules of Origin” determine where your goods originate from and which goods are covered in preference agreements. The origin is the economic nationality of the goods being imported and exported i.e. where they have been produced or manufactured; not where the goods have been shipped or bought from.
• Import and export customs declarations will still be required to be made by the respective responsible person.

VAT

• Great Britain will no longer be part of the EU Single Market – and therefore will be considered a ‘third country’ for VAT purposes – no EU simplification will be available in GB.
• The UK will operate ‘Postponed VAT Accounting’ – this will allow businesses who import to the UK to account for import VAT on the next VAT return. This process will be available for all imports to the UK, not just from the EU.
• HMRC have a dedicated Government webpage to confirm UK VAT Registration numbers in line with the removal from EU VIES system. Check VAT number.

Northern Ireland

• HMRC have chosen to adopt EU Regulations for Customs purposes in NI, which is going to provide a dual customs zone in NI, being part of the EU and the UK.
• UK VAT Registered Businesses who sell goods in Northern Ireland or move goods between NI and the EU should make a notification to HMRC of such supplies. The notification can be made on the dedicated Government webpage - Tell HMRC if you sell goods in NI or move goods between NI and the EU.
  a. Your EU suppliers will be able to zero rate any dispatches to your XI VAT number.
  b. You can supply goods zero rate when you trade in the EU.
  c. You’ll be eligible to use VAT simplifications when you trade with the EU.

Product Certification

• Most goods sold in GB from 1st January 2021 will require the new “UKCA Marking”, which was previously known in the EU as the CE Marking. To allow businesses time to adjust to the new requirements, you will still be able to use the CE marking until 1 January 2022 in most cases.
• The UKCA marking will not be recognised on the EU market. Products currently requiring a CE marking will still need a CE marking for sale in the EU from 1 January 2021.
• The UKCA marking alone cannot be used for goods placed on the Northern Ireland market, which require the CE marking or UK(NI) marking.
• Businesses should check requirements with relevant regulatory bodies.

State Aid

• The TCA ends the EU State Aid regime in the UK and will allow the UK to introduce its own modern subsidy system so it can better support businesses to grow and thrive in a way that best suits the interests of British industries.
• In the coming months, businesses should check with government institutions, trade associations, Gov.UK website etc. for the latest grant and subsidy information

Data Flows

• The deal includes a temporary solution to keep data flowing between the EU and the UK until the bloc has adopted a data adequacy decision.
• This bridge period starts on the date the new deal takes effect and will last a maximum six months, or end as soon as the EU’s data adequacy decision has been finalized, which is expected to happen in early 2021.
• Personal data shipped to the UK during this interim period “shall not be considered as transfer to a third country” under EU law, adding that the UK has to suspend its own transfer mechanism.
• If the UK applies a new transfer tool to ship data to a third country during the interim period, it should “as far as is reasonably possible” inform the EU.
• Both sides committed to upholding high levels of data protection standards and to ensure “cross-border data flows to facilitate trade in the digital economy” without imposing limits on where data can be stored or processed. 

Mobility – Freedom of Movement

• From January 1, EU citizens can’t move to the UK unless they have a job offer, earn at least £20,480 (often more), speak good English and have certain skills.
• In return, UK citizens must get permission to live or work in EU nations and will need a visa for most trips over 90 days.
• UK visitors to the EU need a valid passport; visas are required for stays over 90 days in a 180 day period; there will be additional border checks.
• EU nationals already living in the UK must register for “settled status” by June 30, 2021. To get settled status, you must have been living in the UK for at least five years continuously, without a break of more than six months.
• If you have not been in the UK for this long, you can get “pre-settled status”. You will then have to make a second application when you reach the five-year mark to upgrade it to settled status.
• If you’re a UK national in the EU, you may need to apply for residency status in that EU nation before June 2021. You may also need to buy health insurance or register for healthcare.

Income Tax

• Brexit should have no impact on an individual’s personal tax liabilities. Liability to tax continues to be governed by double taxation treaties.
• UK legislation originally determined the eligibility of non-UK residents to the tax-free Personal Allowance (PA) by whether or not they were EU nationals. This would have produced a situation where an EU citizen who is a non-UK tax resident, is an having the benefit of the PA while a UK citizen who is a non-UK tax resident did not. However, the legislation has now been amended to ensure UK citizens who are non-UK resident are eligible for the PA.

Social Security

• The Agreement contains a number of social security coordination measures aimed at protecting the entitlements of EU citizens temporarily staying in, working in or moving to the UK and of UK citizens temporarily staying in, working in or moving to the EU after 1 January 2021.
• A wide range of benefits are covered, including old-age and survivors’ pensions, healthcare (e.g. European Health Insurance Card) pre-retirement benefits, maternity/paternity benefits related to the birth of a child, or accidents at work.
• The provisions in the Protocol on Social Security Coordination will ensure that individuals who move between the UK and the EU in the future will have their social security position in respect of certain important benefits protected.
• Individuals will continue to have access to a range of social security benefits, including reciprocal healthcare cover and an uprated state pension.
• This Protocol supports business and trade by ensuring that cross-border workers and their employers are only liable to pay social security contributions in one state at a time. Generally, this will be in the country where work is undertaken.
• UK workers who are sent by their employer to work temporarily in an EU Member State which has agreed to apply the “detached worker” rules will remain liable to only pay social security contributions in the UK for the period of work in that EU Member State.
• Similarly, an EU worker who is sent by their employer to work temporarily in the UK from a Member State which has agreed to apply the “detached worker” rules, will remain liable to only pay contributions in that EU Member State.

 
Rödl & Partner is closely following developments and will update you as more details emerge over the coming days, weeks and months.