New Trade Agreement reached between the EU and UK: VAT and imports

A new “Trade and Cooperation Agreement” was reached in principle between the UK and EU on 24 December 2020. The deal will cover the future UK-EU relationship, with the two parties aiming to implement it in time for the end of the Brexit transition period on 31 December.

What impact does this have on the previously foreseen changes from a VAT perspective?

The UK will still leave the EU Single Market and Customs Union on 1 January 2021. This will end the free movement of persons, goods, services and capital with the EU. From a VAT perspective the intracommunity rules for supplies of goods and services will no longer apply and all previously foreseen changes will still apply.

The free movement of goods will end, and customs checks and controls will apply to all UK exports entering the EU and vice versa. A key feature of the agreement includes a free trade agreement ensuring no tariffs or quotas on trade in goods between the UK and EU. It provides for zero tariffs and zero quotas on all goods that comply with the appropriate rules of origin.

The UK and EU have agreed a rules of origin Chapter which contains modern and appropriate rules of origin ensuring that only ‘originating’ goods are able to benefit from free trade agreement. This means that goods must not only be produced in the EU but also consist in majority of raw materials that originate in the EU or the UK to benefit from zero tariffs and quotas. For goods imported into the UK/EU on which duties have been paid, the onward sale to the EU/UK may trigger customs duties again, as these imported goods do not meet the rules of origin.

It is important to remember that regardless of the trade deal, the UK will still be a non-EU member and therefore additional import/export paperwork will still be required to move goods between the UK and EU. It is therefore important to be aware of the new rules that will apply from 1 January 2021. Also, it is important to note that there are proposed new EU rules for online B2C trade which are planned to come into force from 1 July 2021 which will change the VAT rules significantly.