Skip to main content

The new UK-EU border arrangements for goods from 1 January 2021

The new UK-EU border arrangements won’t make trading easier – yet

The UK Government has formally notified the European Union (EU) that it will not seek to extend the Brexit transition period beyond 31 December 2020. When the UK left the EU on 31 January 2020 a transition phase was introduced during which EU law continues to apply for the UK, including the single market as well as the customs union arrangements. From 1 January 2021 the UK Government aims to replace the customs union rules with a free trade agreement (UK/EU FTA), which should provide a zero-tariff and zero-quota trading framework with the EU.

However, it should be noted that even with an FTA, not all goods will be subject to a zero tariff. Certain preferences and annexes to the Schedule of Tariffs will exclude a number of goods. The UK has published its UK Global Tariff (UKGT) which simplifies, removes and clarifies the rates on many goods and sets zero rates of duty on approximately 60% of goods imported into the UK – not just from the EU but from around the globe. Further, these zero rates can also be amended in subsequent annexes to the UKGT if it is believed that certain level playing field or reciprocal arrangements are not being adhered to.

Not being a member of the EU customs union will allow the UK to introduce its own approach to importing goods from the EU, as well as from other parts of the world. It should be noted that these new arrangements will in the first instance only apply to England, Wales and Scotland, which is commonly referred to Great Britain (GB), as special arrangements are being negotiated for Northern Ireland in order to avoid a physical customs border on the island of Ireland.

The new GB border arrangement

From 1 January 2021 the UK Government has the autonomy to set its own rules for goods imported to GB from the EU. The Government aims to agree an FTA with the EU, which could provide for zero tariffs and zero quotas for goods entering GB from the EU. However, the process of how goods enter GB’s new independent customs territory will change. Full border controls on imports will be required, which will undoubtedly lead to more formal procedures for businesses importing from the EU.

The UK Government has recognised the impact of the Coronavirus crisis on businesses and announced that it would introduce a phased approach to the border control implementation as follows:

  • From 1 January 2021, businesses that import standard goods to GB, which can be everything from stationary, clothing or building materials, will need to prepare for basic customs requirements, such as keeping enough records of the imported goods. This is based on the Entry in Declarants Records (EIDR) process of simplified declarations. Businesses will have up to six months to complete the required customs declarations and can defer to pay tariffs, which might be due on the import, until the declarations have been filed. However, businesses must have their own, or access to, a Duty Deferment Account. No Safety and Security declarations via Entry Summary Declaration (ENS) will be required during this time. There will still be full customs formalities required on controlled goods, like alcohol and tobacco. Physical border checks will still take place on a risk-based criterion.
  • From 1 April 2021, all goods originating from animals like meat, milk, eggs or honey, as well as pet food, but also all regulated plants and plant products, will require a pre-notification to the UK’s border control agency and the relevant health documentation will need to be maintained as well.
  • From 1 July 2021, the UK will revert to its ‘Core’ import model. Businesses will be required to make declarations on all imports from the EU at the point of importation and pay the relevant tariffs to the UK border agency. Full safety and security declarations will be required, and physical border checks will be carried out.

New UK VAT arrangements

All businesses importing to GB from the EU as the ‘importer of record’, including businesses not established in the UK, will require a UK VAT registration number as well as a UK EORI reference (Economic Operator Registration Identification). Both registration numbers are linked with each other and provide the UK authorities with the relevant information about the business importing the goods.

Import VAT becomes due at the point of importation into the UK. Currently, Import VAT must still be paid to the UK authorities on the value of the goods imported and then subsequently claimed back with the next VAT return. However, the UK Government has recognised that this method has led to unnecessary cash flow disadvantages and announced that it would introduce a postponed Import VAT accounting method from 1 January 2021. Under this method, Import VAT is still calculated by the border authorities at the time of importation, however, it is not paid anymore to the authorities. Instead, the Import VAT will be shown as a VAT liability on the next VAT return due and at the same time can be claimed back in full, unless the VAT registered business is restricted from claiming VAT amounts.

It should also be noted that from 1 January 2021 any simplification measures as provided by the EU VAT Directive will not be available to the UK anymore, which will ultimately lead to increased VAT registration and compliance requirements from EU businesses in the UK as well as UK businesses in the EU. Cross-border VAT simplifications like triangulation and installed goods arrangements will not be available anymore and will potentially lead to an additional VAT registration requirement in the country of supply.

Bonded warehouses and freeports

Bonded warehouses in the UK can be used for imported goods without entering the UK market and paying import VAT and tariffs while the goods remain in the warehouse. Bonded warehouse arrangements are commonly used for goods that are intended to be exported again from the UK or for goods that will be sold to customers at a later stage. By effectively creating a duty-free zone, bonded warehouses have the advantage of improving cash flow for importers.

The UK Government aims to create up to ten freeports in the UK as part of a wider strategy to position the UK as a hub for global trade outside the EU. Freeports share the same benefits as bonded warehouses, i.e. no import VAT or tariffs become due on imported goods until they are removed from the freeport. According to the plans of the UK Government, the freeports will allow for developing and manufacturing processes to take place inside the freeport, which should attract innovation and research businesses and create jobs. However, freeports are at their most effective when movements are between high and low tariff jurisdictions; as the UK is aiming for a low tariff policy within the international trade environment their benefit is a subject of debate.

The UK Government aims to create up to ten freeports in the UK as part of a wider strategy to position the UK as a hub for global trade outside the EU

Existing Customs Special Procedures

HM Revenue & Customs (HMRC) have committed to retaining duty suspensive and total duty relief regimes such as Inward Processing, Outward Processing Relief and Temporary Admission etc. These are exceptionally useful special regimes that deliver a real-time cash-flow benefit. Further, HMRC have stated that financial guarantees to operate these regimes (Comprehensive Customs Guarantees) will be waived. This will make their operation even more cost-effective. These procedures should be closely considered by both importers and exporters.

Excise Movement and Control System

UK businesses involved in the movement of alcohol or excise goods in suspension – both within the UK and with the EU – will have to register for the Excise Movement and Control System (EMCS). This system monitors and controls all movements of excise goods in suspension and goods cannot move without suitable references and permissions allocated by EMCS.

RO-RO arrangements

HMRC have launched their Border Operational Model. This includes the development of a new Goods Vehicle Movement Service IT system. All haulage traffic will have to obtain a Goods Movement Reference number before importing and exporting goods via road. This system will then inform HMRC where in the customs formalities process the load currently stands and what documents have been submitted. This will allow loads to move unhindered (P2P) or be subject to Route 1 or Route 2 checks at the frontier. Unfortunately, the system is not being ‘stress tested’ until November 2020 with a view to going ‘live’ on 1 January 2021.

EU border arrangements

It is unlikely that the EU will operate a similar flexible and phased approach to their borders from 1 January 2021. Businesses that are importing goods from GB into the EU need to be aware of the new import procedures and potentially apply for a VAT registration number and Economic Operator Registration and Identification (EORI) number in at least one EU member state in order to act as the importer of record at the EU border.

While it is usually a standard process to apply for a VAT registration number in an EU member state, UK businesses might experience difficulties obtaining an EU EORI after the Brexit transition period. The reason for this is that the EU customs code provides that only EU established businesses can act as the importer of record for goods entering the EU. Without a business establishment in the EU, i.e. a permanent presence at which EU authorities can get hold of the business, obtaining a EU EORI reference and acting as the importer of record won’t be possible, which is creating a challenge for UK businesses to continue importing goods into the EU.

The alternatives for UK businesses would be to either set up a permanent presence or even a subsidiary business in the EU, or to appoint their EU-based shipping agent as the importer of record as part of the shipping process. However, we understand that both options can be very costly arrangements.

The importance of Incoterms

Incoterms are a set of trade rules issued by the International Chamber of Commerce (ICC), which define the responsibilities of sellers and buyers of goods in international transactions. The primary importance is that each Incoterms rule clarifies the tasks, costs, and risks to be borne by the buyer and seller in a transaction.

The five most important Incoterms are as follows:

 EXW – Ex Works (insert place of delivery)

FCA – Free Carrier (insert named place of delivery)

CIP – Carriage and Insurance Paid To (insert place of destination)

DAP – Delivered at Place (insert named place of destination)

DDP – Delivered Duty Paid (insert place of destination)

In order to overcome some of the potential issues for UK and EU businesses when selling goods across the UK/EU border, setting the right Incoterms to a transaction can potentially avoid unnecessary VAT and EORI registrations and speed-up the sales process.

For example, if a UK businesses agrees to sell goods on a Free Carrier (FCA) basis to an EU-based customer, this means it is the UK seller paying for the shipping of the goods to a defined destination in the EU. However, it is the EU-based customer who will be acting as the importer of record at the EU border and is responsible for paying any Import VAT and duties due.

Setting the Incoterms to Delivered Duty Paid (DDP), for example, will create an issue for the UK seller, as without an establishment in the EU the UK seller might not be able to act as the importer of record when the goods enter the EU. Instead the UK seller might have to appoint a shipping agent or tax representative to import the goods into the EU and pay any Import VAT and duty due on the seller’s behalf.

There are complex rules as to how a product is deemed to have originated in a particular country of manufacture or subsequent processing

Rules of Origin

There are complex rules as to how a product is deemed to have originated in a particular country of manufacture or subsequent processing. EU fiscal authorities and HMRC will be monitoring the origin of goods very closely to ensure the situation is not abused and the correct tariffs applied. Hence, both EU and UK businesses will have to obtain Certificates of Origin to prove the origin of their goods if there is any doubt or the position is unclear.


Understanding the new VAT and customs arrangements once the UK has left the EU single market and customs union will be paramount for successfully and cost-efficiently selling across the new UK/EU border. Bonded warehouses and new freeports provide importers with more flexibility and opportunities to delay their duty payments. Issues for UK exporters at the EU border can be solved by choosing the appropriate Incoterms, subject to agreement with their EU customer.

Would you like to know more?

This article is taken from the latest edition of our Brexit Insights newsletter, our summary of Brexit updates designed to ensure you have a better understanding of how the UK leaving the EU may affect you as a private individual, a business, or both. If you would like to receive future editions of this publication, please register on our insights page here.

You can also visit out Brexit hub here.

For more information, please contact Alex Altmann.

Check the impact of the Spring Budget Statement with our Tax Calculator Visit our Spring Budget Hub