Well, it went right up to the wire, but on Christmas Eve, just a week before the transition period came to an end on 31st December 2020, UK and EU negotiators finally reached agreement on a post-Brexit deal.
Running to more than 1,200 pages, the agreement on trade and other issues marks the end of the UK’s 40-year membership of the European Union. It has implications for businesses, people, and the UK’s future relationships with other countries.
But even before details of a post-Brexit trade arrangement were confirmed, we already had certainty on two significant changes arising from the UK parting ways with the EU. The first relates to the way VAT is reported on goods imported into the UK from the EU; the second to the status of EU citizens living in the UK:
1. Postponed VAT
Before the end of the Brexit transition period, goods imported into the UK from EU countries were exempt from VAT. But as of 31st December 2020, this has changed. Now, for VAT purposes, goods imported into the UK from the EU are treated the same as those that come in from anywhere else in the world, meaning that VAT is due on all goods with a value of more than £135.
Recognising the cash flow implications for businesses buying goods from the EU – and the potential for imported goods to be stuck in customs while VAT bills are settled, the government is introducing a new system known as postponed VAT.
From 1st January 2021, VAT registered businesses importing goods into the UK from anywhere in the world can account for any VAT due on their VAT return – rather than having to pay it immediately.
As well as easing potential cash flow issues for businesses importing from the EU, postponed VAT will give a cash flow boost to companies already importing from outside the EU zone.
How postponed VAT works
From 1st January 2021, you’ll need to make changes to how you complete your VAT return and account for import VAT. Instead of paying the import VAT due when goods arrive in the UK and then reclaiming it on your next VAT return, you simply account for it on the same return as input and output VAT.
2. EU Settlement Scheme: EU residents in the UK
Of course, the UK leaving the EU doesn’t only impact trade – it has implications for people too.
For EU citizens already living in the UK on 31st December 2020, nothing will change immediately. Until 30th June 2020, they’ll retain all their rights, but after this date, to continue living in the UK, they’ll need to become a UK citizen or have obtained settled or pre-settled status under the EU Settlement Scheme.
- Settled status
Having settled status entitles an individual to stay indefinitely in the UK. Subject to certain criteria, they can also apply for British citizenship.
To be eligible, an individual needs to have started living in the UK by 31st December 2020 and must have lived in the UK for a continuous five-year period. This means that for five consecutive years, they must have lived in the UK for at least six months in any 12-month period. There are some exceptions to this rule including being in another country for up to 12 months for an important reason such as study, childbirth or illness, or having to undertake compulsory military service of any length.
- Pre-settled status
EU citizens who are living in the UK by 31st December 2020 – but don’t have five years’ continuous residence – can apply for pre-settled status, allowing them to stay in the UK for a further five years. When they have achieved five years’ continuous residence, they can then apply to change this to settled status.
With settled or pre-settled status, an EU citizen has a range of rights including, the right to work in the UK and – subject to eligibility – to use the NHS for free and access benefits and pensions.
Does Your Business Sell Services to the EU?
If you run a UK business selling services to the EU, you’re no longer operating under the European Economic Area (EEA) regulations which governed cross border trade pre-Brexit.
Although the new UK/EU trade agreement ensures UK businesses will continue to have fair access to EU markets, some changes will apply. These changes are different for each sector and differ in each member state of the EU.
Do You Need Help Trading Post-Brexit?
Directly and indirectly, the UK’s new trading relationship with the EU will affect many UK businesses. If you’d like help or advice on trading with the EU or complying with post-Brexit regulations.
Call us now on 01235 868888 or email us at [email protected].
