Demystifying post-Brexit trade for UK companies


When the UK struck a trade deal with the EU on Christmas Eve, it went some way to relieving Brexit uncertainty for thousands of businesses that trade with the continent.

But the Brexit trade deal with the EU has only been provisionally approved and Brussels has until 30 April 2021 to fully scrutinise it. What this means for businesses in the UK is that this period of uncertainty is being prolonged.

We’ve already seen footage of lorries queuing to get to the Port of Dover, while some businesses in Europe are simply refusing to send goods to the UK on the back of being asked to register for and pay UK VAT.

Outside of the EU, the UK had free-trade agreements with 60 countries while also having three mutual-recognition agreements with the USA, Australia and New Zealand as of 1 January 2021.

But what do these agreements mean in practice for businesses in the UK?

Overseas companies

Many UK companies have subsidiaries in EU countries and vice versa. For example, an estimated 2,500 UK companies have a branch in Germany and there around 1,300 German subsidiaries in the UK.

Before the deal was agreed with the EU, there were fears that finance companies would pull out of the UK. But around 1,000 EU money managers, insurers and payment firms have applied to set up branches in the UK.

The deal in principle with the EU seems to be showing overseas companies that the UK is very much open for business, while avoiding a no-deal Brexit took the prospect of costly new tariffs and quotas off the table.

Tax issues

The main Brexit-related tax change surrounds VAT. Since 1 January 2021, VAT has been collected at the point of sale, instead of the point of importation.

This means overseas companies that send goods to the UK need to register for UK VAT and pay it to HMRC. In practice, however, some EU firms are refusing to register and have stopped supplying goods to the UK.

For UK businesses that continue to export goods to the EU most goods are now zero-rated for VAT, although it’s still important to record accurate dates on customs declarations for VAT purposes.

Selling digital products abroad

UK companies that send digital products abroad, such as online software and downloadable or streaming media, need new VAT registrations in time for January reporting to avoid being fined by the tax authorities.

UK-based sellers can no longer use the single VAT MOSS return to report sales to EU consumers and pay EU VAT.

Instead, they need to apply to an EU member state for a MOSS registration number. This enables them to report quarterly sales to EU27 states under the non-union MOSS scheme.

EU companies, such as Swedish music streaming provider Spotify, need to apply for a UK VAT number to report quarterly sales to UK customers – regardless of the VAT-registration threshold of £85,000.

Get in touch for support with VAT planning and registrations.

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