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Post-Brexit uncertainty

A free trade agreement post-Brexit is not the whole solution for UK traders, asserts Simon Sutcliffe.

Many businesses are being told by the government to prepare for an Australia style model trading arrangement after the apparent stalemate in the ninth round of UK-EU of trade talks (as was the case at the time of writing). While this moniker is likely to be designed to appear more palpable to the UK public, it demonstrates the persistence with simplistic messages that are unfortunately undermining the valid and valuable questions raised by traders and advisers alike.

The preparations and negotiations surrounding the UK’s exit from the transition period revolves around guidance published by the UK government advising UK and EU traders how to import and export goods. Chief of these is the border operating model document ( which was again recently amended to clarify and add much needed expansion on various points and the customs treatment of some types of goods. However, much of the supporting guidance is contradictory and still centres on simplistic business models of established UK and EU businesses selling to other unrelated established UK and EU businesses.

Many of the practical issues of moving goods and who may move goods will not be resolved by a free trade agreement.


As fiscal authorities in the EU and UK decide how they will best police the customs systems and ensure that companies are available and able to pay any customs debts or answer any questions about the goods they move, closer attention is now being paid – especially in the EU – to the overarching pieces of legislation that govern the movement of goods now and provisionally after 1 January 2021. In this case, these are the Union Customs Code (UCC) and the UK’s EU provisional exit regulations.

Many of the practical issues of moving goods and who may move goods will not be resolved by a free trade agreement – which at this late stage may come at best only in the form of a ‘window dressed’ political agreement of reduced or zero tariffs. The whole system and structure as to how goods move across the UK and EU border will fundamentally and permanently change after December 2020, regardless of the levels of tariffs and exemptions that are agreed.

The UCC – which the UK will cease to apply in January 2021 – will be replaced in the UK by the Taxation (Cross-border Trade) Act 2018. Tucked away in both these pieces of legislation are criteria that will fundamentally affect how many UK and EU companies will do business with one another in future.

Both set out the eligibility requirements for a business wanting to import or export goods to ‘itself’ to make a sale or buy in another country where it is not established – a familiar and common occurrence for many businesses in the single market.

Businesses that supply a large multinational – which may have numerous small suppliers and hold a huge influence and buying power – are often instructed to supply their goods on onerous incoterms (shipping terms) right up to the ‘warehouse door’ of the buyer. They often have to deal with all the customs documentation and taxes in both the country of despatch and the country of arrival of the buyer.

Key points

  • The UK replaces the Union Customs Code with the Taxation (Cross-border Trade) Act 2018.
  • Problems with who is legally permitted to make customs declarations on export and import.
  • Businesses may have to employ an indirect representative.
  • Government focus seems to be on exporting goods.


Permitted declarants

A free trade agreement will not remove the obligation to submit customs declarations. Therefore, problems arise as to who is legally permitted to submit these declarations for both
export and import.

Usually, the declarant or exporter or importer of record must be, among other things, the party that has the power to make reasoned decisions about the goods’ disposal and be able to present them to the customs authorities for inspection, as well as being aware of local export and import restrictions. Additionally, and possibly the most important requirement, is the obligation to pay any import or export taxes due.

To this end most fiscal authorities require an entity which they can visit and assess in the event of a customs error or irregularity. Hence, they usually insist on an established business from which they can gather information and seek any underpayments of duty. Therein lies a potential problem for some EU and UK companies as to how they currently and will do business in the single market from 1 January 2021.

Both the UCC and the Taxation (Cross-border Trade) Act 2018, which contains provisional EU exit import and export regulations – the Customs (Import Duty) (EU Exit) Regulations 2018, para 15 and Customs (Export) (EU Exit) Regulations 2019, para 12 – that become enacted after 31 December 2020, prohibit a company from submitting customs documents if it is not established in that country.

Unless the company is willing to become ‘established’ – this can mean a registered office, central headquarters or permanent establishment where perhaps business records are kept, some form of technical resources and staff and directors reside – it will not be regarded as ‘established’ in that  jurisdiction and therefore cannot be the declarant on customs documents. Other than persuading the customer to be the importer of record or declarant or appointing a local distributor, the only alternative for the company to ensure its trading continuity is to employ an agent established in the country who is willing to act in both the company’s name and their own name.

Called an ‘indirect representative’ (IR), they will be considered by local customs agencies as ‘joint and severally liable’ for any customs debt should something go awry, or the local fiscal authorities find a problem with the consignment. Understandably, these agents correlate this increased risk by levying additional charges.

Stance taken by EU states

As well as other countries in the EU verbally confirming this position, the Dutch customs authority recently announced its formal requirement for a company to be EU established to be able to take on the role of ‘exporter of record’ in accordance with their adherence to the UCC’s Delegated Act. This means that an agent completing an export declaration on behalf of a UK established company that is exporting goods from the Netherlands will no longer be allowed to enter the details of a non-EU established company as the ‘exporter’ in box 2 of the
customs export declaration.

Further, other EU fiscal agencies are refusing to consider applications for EU economic operators registration and identification (EORI) numbers until 1 January 2021 or are refusing applications if the trader is not established in the territory. They quote UCC, Art 170(1) and Art 18(1) on the rules of establishment and eligibility to render customs declarations in the EU. This position becomes increasingly problematic for a business wanting to prepare for the forthcoming changes. Indeed, the various fiscal agencies in the EU and UK that have been contacted are disparate or silent as to how they will deal with this issue.

Compliance focus

However, it seems that the compliance focus on the ‘establishment’ for customs declarations emerging from the EU and UK is mainly export based. This is presumably given the lack of a ‘choke-point’ for goods that would accompany an importation and the possible payment of import duties or a surety at the frontier. Interestingly, many EU fiscal authorities (the UK included) have, to date, had a degree of Nelsonian blindness to the issue of an establishment and being allocated an EORI number to allow them to import goods.

Most fiscal authorities require an entity which they can visit and assess in the event of a customs error or irregularity.

Therefore, we have to hope that a realistic and common-sense approach and agreement as to the continuity of trade is reached based on potential revenue risk. It is possible, as demonstrated by HMRC with the potential removal of customs guarantees on deferment accounts and the staged (but flawed) approach to a six-month deferred customs entry regime. This would, especially for smaller businesses, allow them to maintain their customer base and have some ‘real’ business continuity rather than see a simple political gesture in December based simply on tariffs.

Planning point

Ensure that clients who export goods are aware of their options and obligations when the Brexit transition period expires on 31 December this year.

For more information, please contact Simon Sutcliffe.

First published in Taxation.

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