Last week, we surveyed a portion of our membership to ascertain how businesses are coping with the new post Brexit trading environment. The overwhelming message that emanated from the survey was that customs paperwork is the biggest difficulty of the new trading environment with over half of respondents appealing for better practical guidance from government to enable them to complete the declarations correctly.  Read on for more insights from the survey and thank you to all those who responded. 40 percent of businesses surveyed have already made changes to their supply chain or business model as a result of the UK’s departure from the EU and well over half of respondents reported disruption to their supply chain caused by issues with customs paperwork and resulting in delays in shipments.   The East/West border created down the Irish sea and the complexities surrounding the rules of origin were also reported as difficulties and 30 percent of businesses surveyed reported that they have stopped shipping goods through Great Britain as a result.   The Institute notes members’ need for practical guidance and continues to engage with government officials and other stakeholders in both the UK and Ireland on behalf of members on these and other issues and will keep members updated on all developments. Our latest Brexit Digest deciphers the Trade and Cooperation Agreement.

Last week the Chancellor of the Duchy of Lancaster announced in Parliament that the Government is seeking to reinstate the VAT margin scheme in NI on second hand cars purchased from GB which it previously had stated would not be available after the end of the EU transition period. This Institute has been lobbying HMRC to seek a derogation and reinstate the scheme for second hand goods since HMRC published the first version of its guidance on changes to accounting for VAT for Northern Ireland on 26 October. The derogation requested relates to vehicles only. The Institute wrote to HMRC, the European Commission, Ministers in the Irish Government and Diane Dodds, MLA to express concerns in respect of the VAT margin scheme and other areas of the VAT guidance for NI. The Institute has also been voicing its concerns in several meetings with HMRC’s VAT policy team working in this area. HMRC has also published updated guidance on changes to accounting for VAT for Northern Ireland and Great Britain from 1 January 2021. The updated guidance confirms that HMRC’s treatment of another issue of concern has also been amended following our lobbying which specifically relates to a relaxation in some cases on the strict VAT treatment where goods are sold to the EU from GB via NI. The Institute continues to engage with Government and HMRC on matters relating to the end of the EU transition period. HMRC has since written to us to confirm the change announced in Parliament on the VAT margin scheme for NI as follows:- “I am writing to you from HMRC following recent Government announcements regarding the operation of the VAT second-hand margin scheme in Northern Ireland. As you will be aware, VAT will continue to be accounted in much the same way as it is currently on most goods sold by a VAT registered business between Great Britain and Northern Ireland. We are aiming to minimise disruption for traders moving goods from Great Britain to Northern Ireland. We have heard the concerns raised about the use of the second-hand margin scheme in Northern Ireland with respect to motor vehicles sourced in Great Britain. We understand the impact this may have on traders and consumers in Northern Ireland and so we have been exploring options to minimise this. We would like to thank you for your engagement with us on this issue. In the interest of both traders and consumers, the Government is looking to agree a long-term derogation with the European Commission to allow the margin scheme in Northern Ireland to apply in respect of motor vehicles sourced in Great Britain.  In the interim, please see the following guidance issued on how traders can continue to apply the margin scheme in relation to motor vehicles sold since the end of the transition period: https://www.gov.uk/guidance/the-margin-scheme-on-second-hand-cars-and-other-vehicles-vat-notice-7181.”  

As expected, the UK EU Trade and Cooperation agreement does not contain any measures constraining the UK’s domestic tax regime or its tax rates which were largely always a matter for the UK to determine. See also last week’s update on VAT and social security in the most recent Brexit digest. However the agreement does commit both the UK and the EU to uphold global standards on tax transparency and fighting tax avoidance. It also contains commitments to specific tax standards as they stand at the end of the transition period, including the international standards on exchange of information and anti-tax avoidance. The commitments on tax are also captured in a stand-alone Joint Political Declaration on Countering Harmful Tax Regimes (page 3) with a continued commitment to BEPS (Base Erosion and Profit Shifting) actions. This declaration is aimed at being a political commitment to the principles of countering harmful tax regimes, and reflects the work done by the OECD in this area. It should also be noted that the UK no longer is a participant in the EU Arbitration Convention governing tax disputes. DAC 6 status DAC 6 (EU Council Directive 2011/16) is a new system of mandatory reporting of cross-border tax arrangements affecting at least one EU member state where the arrangements fall within certain “hallmarks”. Commencement of reporting under DAC 6 had been previously been delayed six months meaning the first reporting date for some transactions is 30 January 2021. However, now that the EU transition period has ended, HMRC has confirmed that the UK will not be applying DAC 6 in its entirety. Instead, only arrangements which would been within Category D of DAC 6 will need to be reported, in line with the OECD’s mandatory disclosure rules. We understand that this change is intended to be retrospective hence  disclosures are not required for any arrangements which previously were required to be reported. The earliest reporting date for arrangements falling under this revised policy remains 30 January 2021. The UK previously implemented DAC 6 into domestic law via regulations which have now been amended. Receipt of interest, royalties or dividend payments from the EU From 1 January 2021, the EU Parent Subsidiary Directive and the EU Interest and Royalties Directive no longer apply in the UK. This means that certain payments to UK companies may now become subject to withholding taxes where none previously applied. HMRC has now published updated guidance in this area. Overall, the key advice is to check the terms of the relevant double taxation agreement between the UK and the EU country if a company is UK resident for tax purposes and it receives interest, royalties or dividends payments from an associated company resident in an EU member state. The amount of withholding tax required to be deducted depends on the double taxation agreement between the UK and the paying EU country.

Businesses across the island are adapting to the changes to their trading conditions which for some has resulted in significant supply chain disruption. We are aware that some businesses are experiencing difficulties adjusting to the new customs rules and administration requirements in particular and we continue to engage with UK and EU authorities and other stakeholders with regards these and other concerns. Our latest Brexit Digest deciphers the Trade and Cooperation Agreement and today’s bulletin highlights some supports available from customs authorities in the UK and Ireland. IRELAND RoRo movement – Temporary facility for ENS Revenue is implementing a temporary easement to alleviate difficulties businesses are experiencing in lodging safety and security Entry Summary (ENS) Declarations in respect of “roll-on roll-off” (RoRo) goods movements. This temporary easement is in place since last Friday (8 January).  For RoRo movements, Revenue has compiled a list of the most common PBN errors and related issues and how they can be rectified. See the list here.  All eCustoms notifications can be found here.  Members involved with importing/exporting are recommended to sign up to receive Revenue's eCustoms notifications by contacting ecustoms@revenue.ie. Subscribers will be notified if there are any issues with systems.  Read more Revenue’s advice for moving goods from Great Britain into Irish ports   Revenue have reminded truck drivers of two key things to keep in mind to ensure they can access their customs channel when moving goods from Great Britain into Ireland by ferry: Have the Pre-Boarding Notification Identification number (PBN ID) for the vehicle or trailer; and Check the customs channel no earlier than 30 minutes prior to disembarking. The advice contained in the Revenue press release is said to ensure that vehicles carrying goods to and from GB will be able to board their scheduled ferry without any difficulties and, will mean truck drivers can present goods for customs controls, if any, on arrival with the minimum of delay.  Read more about creating a correct PBN and checking the customs channel. To find out more information about what declarations are required, please visit our Brexit hub. Import VAT postponed in Ireland on GB imports The Postponed Method of Accounting for VAT was introduced in Ireland for imports into Ireland by registered businesses from countries outside the EU (including Great Britain). This means that instead of Irish businesses having to pay import VAT upfront at time of importing the goods, business can elect for VAT to be accounted for in the next VAT return.  This Institute lobbied for the introduction of this option since the Brexit referendum to ease the cash flow burden for many traders. The UK has already introduced this method for imports from the EU.  Read more.   UK HMRC webinars to support businesses HMRC are holding a number of webinars in the coming weeks to assist businesses in getting to grips with the changes which are now in effect due to the end of the transition period. Register on a webinar to find out what you need to do, and to discover more about the new customs processes which are now in operation. Please note that many of these webinars are aimed at businesses in GB trading with the EU. Read more. UK government guidance The Institute has been working with the Department for Business, Energy & Industrial Strategy to help prepare UK businesses for the transition to the new trading rules.  The Department has issued guidance and tools to help.   Read more.   Brexit Bites Reflecting the degree to which Ireland will be affected by Brexit, Ireland is due to receive €1.051 billion from the EU’s Brexit fund. The Brexit Adjustment Reserve is worth €5.4 billion and was set up last year to help member states most affected by the departure of the UK from the EU. Read the official statement.   The EU’s decision-making process on UK data adequacy could begin in a matter of weeks. The European Commission’s head of data flows Bruno Gencarelli told MEPs (at 10:48:20) yesterday that the EU team were finalising their assessment and would then “trigger the decision making process in the coming weeks”.   While the Trade and Cooperation Agreement concluded doesn’t cover data adequacy, the UK and EU have agreed that an adequacy decision on the UK’s data protection regime will be made within six months. For now, data can continue to flow between the EU and UK as before. If a positive decision on adequacy is not reached, data transfers will still be allowed but the process will be more complicated with additional safety measures required when transferring data.   The costly impact of the UK’s departure from the EU has been felt by online shoppers since the start of the year. VAT and customs charges which until now might have earned a brief glance by online shoppers on payment screens, are now causing costs, confusion and even shipping delays at every turn.  Let’s look at why. 

Carol Lynch, Customs expert from BDO, gives us some insights into the difficulties some businesses have been experiencing with customs formalities as a result of the new trading environment and shares some useful tips to help with these initial problems. Since 1 January we are now trading with the UK as we do with any non-EU country. The requirements for International Trade between the EU and non-EU countries are laid out by the Union Custom Code and there are no derogations to this for trade with Great Britain. In many ways Ireland, as an International outward facing economy, is well placed to manage this transition. However, we have seen over the last two weeks significant delays on imports arriving in Ireland as a result of ·new customs systems that companies need to manage to enable imports to be cleared through Customs, as required by the EU rules for non-EU Trade ·new requirements from the Department of Agriculture (DAFM) in relation to pre-notifications, registrations, and certifications, also as required by EU rules for non-EU Trade a requirement to understand the new rules regarding “origin” in order to be able to take advantage of the Trade Agreement agreed on 24th December All this, along with Covid, have meant than many Irish firms, who have never traded outside of the EU before, have been very under-prepared in light of both having to deal with the day-to-day pressure of maintaining business in a Covid environment, and prepare for new rules for trade while staff may be pre-occupied elsewhere. Unfortunately, however these new rules are here to stay and there is no longer any point in either arguing against them or hoping for a last-minute agreement to resolve them. At this point businesses need to upskill in relation to Customs and put in place new procedures for importing and exporting that comply with Revenue requirements and do not unnecessarily incur customs duties. Our recommendation in BDO has always been to prepare and plan as much as is reasonably possible to ensure you can move your goods in 2021. As a result, our JV Customs Clearance Company, Declaron, established between BDO and Fexco, has a focus on customs preparation and education in order to support the customs clearance process. As a result, Declaron encourage all companies to upload their customs data in advance, to ensure it is accurate and compliant, and to take advantage of the many training webinars and videos that Declaron provide to customers to ensure they understand customs requirements. The Declaron focus is on getting the data right in advance and therefore ensuring no delays at the Ports. This has always been the BDO approach and we spend a lot of our time advising our clients on ensuring correct customs classification, advising on how to determine the value of goods (for example in cases where there is no sale) and, most importantly since 24th December, how to take advantage of the new rules of origin. The Trade Agreement was a fantastic success for Irish Business and means that many can now trade duty free between Ireland and the UK. However, as with everything customs related, there are strict rules of compliance. A company needs to confirm the tariff classification of the goods they are selling check the required rule to achieve origin e.g., 50% added value in the EU, or Change of Tariff Heading etc. ensure the work being done meets the sufficient processing rule. This means that goods need to undergo substantial manufacturing to qualify as originating and if only minimal operations are carried out e.g., minor handling, unpacking, repacking then those goods will not qualify as sufficiently processed. We have seen disputes on this affecting many companies, as reported in the media, and which in particular affect UK distributors importing goods from the EU for onward sale to Ireland. While there are alternative customs rules to resolve this issue, it can be seen that the rules of origin in the Trade Agreement need to be fully understood in order to prevent non-compliance. Finally, as an added burden, companies also need to comply with the rules for imports of food products, products of animal origin, plant-based products and composite products. This is a whole new set of rules that work alongside Customs and are particularly complex. However, you will not be able to import your food products into Ireland without compliance with these requirements. Last week we saw in the region of 50% of all goods being stopped at Dublin Port being stopped for not-compliance with DAFM requirements. Again, in BDO we have a long-standing relationship with Irish Food companies and have specialist support services to advice on this along with a dedicated cross department Food and Drink Team. In conclusion therefore the BDO advice would be to spend as much time as possible on preparation for the new world and on drafting up new procedures. Freight was light last week and there were still long delays. If you are planning your first imports over the coming weeks make sure therefore to put the required customs planning steps in place now and also resolve your clearance issues with experienced agents using advanced IT solutions. Also ensure your agents have fully scalable 24/7 capabilities as otherwise you may find yourself waiting in line for support. Carol Lynch, Partner, BDO Customs & International Trade Services

Section 137 of the Companies Act 2014 requires an Irish-registered company to have at least one EEA-resident director, which until the 31 December 2020 could include a UK-resident director. We have written to the CRO to seek clarification on the impact (if any) that the Trade and Cooperation Agreement concluded between the EU and UK will have on this requirement, and whether UK-resident directors will be recognised as meeting this condition. We are aware that this issue is of concern to many members and we will keep you updated.