What Accountants Should Know About The New Brexit Trade Deal
With the new Brexit trade deal agreed, a robust understanding of the key points and how they relate to your clients is crucial.
Getting to grips with the new rules
The Brexit transition period ended on the 31st December 2020. Just in the nick of time, a UK/EU trade deal was reached on the 24th December, providing some certainty for businesses and individuals.
Here we’ve put together a quick guide of the main points of the trade deal that business accountants should be aware of.
Customs Duty tariffs
The new Free Trade agreement allows trade to continue with no Customs Duty tariffs. This applies to goods being bought and sold between the EU and the UK.
Unlike a Customs Unions, Free Trade agreements are bilateral. This means that goods can only be traded with 0% tariffs as long as they were produced in either the UK or the EU. This is determined by the percentage of UK or EU content.
Essentially, it’s up to exporters to prove their goods qualify for tariff-free trade. This is done by obtaining a preference certificate. The threshold required to be eligible for an FTA certificate is not exact, but is currently set at 55-60%. It will frequently be a judgement call that exporters themselves must take.
For reference, the Institute for Government has published a comprehensive guide to the rules of origin that may help clarify things.
Duty deferment accounts is something many companies are now looking in to.
In a nutshell, HMRC now offers bank guarantee waivers that UK companies can apply for. Furthermore, import VAT accounting has now changed so that businesses can reduce their bank guarantee. If a business is only importing tariff-free goods under the FTA, and is using postponed VAT accounting (PVA), a deferment account may not be a requirement in future.
More information can be found on the Government’s Duty deferment accounts webpage.
The UK is now a ‘third country’ having left the European Union. This means that from now on, UK businesses wanting to trade in the EU need to appoint an Indirect Customs Representative. Furthermore, they must register for VAT, and appoint a fiscal representative in whichever EU country it is trading with.
VAT registration requirements in countries receiving the imported goods are remaining the same.
A wealth of information can be found in the VAT section of the Gov.uk website.
Postponed Import VAT accounting
All VAT registered businesses can use Postpone Import VAT accounting when they import into the UK. This is a particularly welcomed procedure as it means import VAT doesn’t need to be paid when goods are brought into the UK. In turn, companies are therefore saving cash.
A point to note here is that companies must make clear to their customs agent that goods should be declared against the PVA. Otherwise, import VAT will need to be paid and then claimed back later.
Monthly PVA statements can be downloaded via a company’s Government Gateway account.
Approved Exporter Status
Some good news here when it comes to the cutting of administrative costs and red tape. This is because Approved Exporter Status is advantageous where companies are selling large volumes of UK goods into the EU. Pre-authenticated HMRC forms or an invoice declaration can be used where required.
Additional guidance for exporters, plus the online service or postal form C1454, is located on the Apply for approved exporter status page of the Gov.uk website.
New e-commerce rules also now apply with key changes being:
- The abolition of Low Value consignment relief
- Businesses must register for VAT if they sell online into the EU. At the time they supply the goods, they must also account for UK VAT.
There’s still some uncertainty surrounding commerce trading arrangements between the UK and Northern Ireland regarding the Trader Support Service (“TSS”). However, clarity on this is expected soon.
The R&D Tax Credits scheme is set to continue
The government currently has no plans to discontinue the R&D Tax Credits scheme. In fact, now the UK has left the EU, we will no longer be bound by its rules on state aid. Let us explain.
The R&D Tax Credits scheme is made up of two sub-branches: the SME branch, and Research and Development Expenditure Credit (RDEC). Smaller companies will typically use the SME scheme to claim the relief, unless they have previously claimed state aid. If this is the case, they’ll need to use the RDEC branch instead, alongside larger companies.
The SME branch of the scheme is classed as ‘Notified State Aid’ which in itself is a form of public financial assistance. It’s approved and regulated by the European Commission, adhering to state aid rules. The EC is then able to limit how much financial aid each country can give to its own domestic businesses, so a union-wide level playing field can be maintained. On top of this, state aid rules stipulate that companies cannot receive multiple forms of notified state aid for the same development project. So, a company that has already claimed an Innovate UK grant to cover the design of a piece of software, it cannot then claim SME R&D Tax Credits for development work on the software as well.
We want to be crystal clear though: Just because a company has received notified state aid and/or government grants before, it can still apply for R&D Tax Credits. It just has to use the slightly less generous RDEC branch of the scheme, regardless of its size, assets or turnover. You might find our recent blog R&D Tax Credits: What's The Difference Between The SME Scheme And RDEC? useful at this point.
With the UK having now left the EU, the government is, in theory, able to set the R&D Tax Credits rate to any level it likes. It could also allow companies to claim EIS funding, R&D grants and other subsidies, in relation to the same projects. Time will tell.
How we can work with you and your clients
The Myriad Associates team consists of a range of R&D tax and funding specialists working entirely in the area of R&D finance. Across our two decades in business, we have worked with numerous accountancy firms and their clients in achieving the research and development funding needed to move their businesses forward.
See what it means to partner with us, or contact our experts on 0207 118 6045. We're working remotely as usual during lockdown, so please also feel free to drop us a message and we'll get back to you.