It could be argued that Brexit, the United Kingdom’s parting from the European Union on January 31, 2020, has been a process that has been unfolding over a significant amount of time. Since the majority of people residing in the U.K. opted to depart from the European Union in June 2016, their situation has been unsteady due to administrative details and has only been made worse by the current health crisis.
It appeared likely that the majority of British businesses, 61%, had not taken any steps in getting themselves ready for the United Kingdom’s exit from the European Union in June 2020, judging from government statistics.
Although the new rules will soon be put in place, after six months’ time, it is still uncertain what impact Brexit will have on ecommerce companies.
It is obvious that, regardless of where your enterprise is based, trading with the UK will be subject to fresh regulations, fees, and customs duties. A customs line will be put back in place between the European Union and Great Britain (England, Wales, and Scotland), and this will bring along with it new Value Added Tax regulations for products brought into the U.K. Northern Ireland will have a double-sided situation post-Brexit, where they will be regarded as both a component of the U.K. customs area and also be a member of the European Union (EU) single marketplace with respect to Value Added Tax (VAT).
Asquith, vice-president of global indirect tax at Avalara, claims that Brexit will require ecommerce sellers to deal with more red tape, as well as increased taxation. It is a major struggle, particularly for smaller online stores, to stay in business due to the expenses associated with following regulations.
Negotiations are underway to establish a free trade arrangement between the U.K. and the EU, yet what the trading rules and tariffs will be like going forward is still uncertain. Although we are not certain what the impacts of Brexit will be, we can speculate on how it is likely to affect ecommerce and how businesses can get ready.
What is Brexit?
The United Kingdom’s exit from the European Union is commonly referred to as ‘Brexit’.
It has always been a contentious issue within the UK as to whether it should be part of the EU. A proposal for an official vote on whether to keep our spot in the European Union or not finally came about, becoming known as the European Union Referendum Act 2015.
British citizens voted to secede from the European Union in June 2016 after much disputation over the matter. The result was a close one.
Voters that chose to “Leave” the European Union primarily stated the need for the United Kingdom to have greater autonomy and freedom. Numerous citizens thought that major choices influencing the UK, particularly concerning commerce and guidelines, ought to be taken by the nation itself rather than in Brussels, where the European Union is based. Many Britons wanted to regulate immigration more strictly, which had a huge influence on the results of the referendum. Immigration from the EU had drastically increased and some citizens of the country wanted to restrict the cultural transformation, and worryingly, contend with job opportunities.
On March 29, 2017, the formal two-year process for a nation to depart from the EU began when Article 50 was put into action.
What is the Impact of Brexit?
It is uncertain what ramifications Brexit will have, especially in terms of economics, as the UK’s exit from the European Union has been postponed till October 31, 2019. Depending on how talks move ahead in the near future, a variety of potential outcomes could take place.
- No-Deal Brexit.
In the event of a No-Deal Brexit, the UK would exit the European Union without a formalized understanding regarding their long-term relationship.
The implications of this development would be great and far-reaching for both European Union and United Kingdom businesses. In this case, the United Kingdom would straight away revert to the standards of the World Trade Organization concerning trade. Although the UK would no longer be bound by EU rules and regulations, it would still need to face the EU’s tariffs.
In March 2019, the UK government revealed a provisional tariff policy that would take effect if there is a No-Deal Brexit, projected to cause a rise in the cost of a number of items imported into the UK, such as food and cars.
Certain items produced in the UK may not be allowed to enter the EU, and some businesses might relocate from the UK to the EU in order to dodge any potential transport problems when moving things to other countries still part of the European Union.
It has been deemed this is the most dangerous resolution concerning both economics and politics, and the negotiators for Britain and the EU have been striving hard for months to evade this ending. It is within the bounds of reason that a lack of resolution may eventually lead to this outcome.
- Brexit Deal.
If a Brexit deal is agreed upon, there will be a timeframe in which the UK will transition out of the European Union in an even-handed manner. The UK will also be expected to contribute a total of 39 billion pounds for its departure from the EU.
Furthermore, intricate matters such as trade agreements and tariff amounts between the United Kingdom and the European Union, emigration regulations, Britain’s obedience to the European Court of Justice, and more, must all be attended to. A major challenge in talks relates to the positioning of taxes on products being transported over Northern Ireland–Republic of Ireland line.
It is largely thought that this situation is the best for both the United Kingdom and the European Union, yet many finer points still remain unsolved.
- Brexit falls through.
It is speculated that, without a Brexit deal in sight and negotiations continuing to drag on, the process of Britain leaving the EU would be abandoned due to a prolonged inability to reach an accord.
Which Ecommerce Merchants Does it Impact?
Brexit will have an effect on online businesses from all corners of the world, primarily British ones that are operating internationally, those that are already operating in Europe, and those from other countries that are selling on the UK and EU markets.
- British companies selling anywhere.
Companies based in Britain that trade across borders outside of the UK will have to adhere to the newest restrictions when exporting and importing between the two destinations, which may result in limits, blockages, or prohibitions on their goods, higher tariffs, and other forms of trade blocks.
- British companies selling in Europe.
British businesses that offer goods or services to customers in the EU will have to prepare for the introduction of tariffs when importing into the EU as well as limits on shipping and rules to follow when operating beyond their borders. The cost of their merchandise could increase due to this, and distributing it to customers in the European Union could be hampered.
- Foreign companies selling in Britain and Europe.
Organizations that deal around the globe by supplying goods both to the UK and the European Union will have to be ready to modify their sending and selling practices extensively to match with a UK that has detached itself from the EU post-Brexit. It is anticipated that this situation will involve establishing distinct transport and sales instructions that apply only in the UK.
What Are Potential Impacts on Businesses from Brexit?
It depends on whether the United Kingdom and the European Union negotiate an agreement before the expiration of the October 31, 2019, time limit as to precisely what the effects of Brexit will be. No matter what the final arrangements of Brexit may be, it is probable that businesses will experience effects from it in a variety of ways.
- More customs.
When Britain finalizes its Brexit deal, it will no longer be a member of the European Union’s single market, which means the open borders that allowed for the unrestricted exchange of goods between other EU countries will be gone.
- Longer shipping and transit times.
It is probable that parcels transported between the UK and the EU will take longer to arrive due to more rigid customs requirements.
- Different tariffs.
Given the UK’s and EU’s separation, each is allowed to set taxes on the other’s imports, which will cause prices to rise and could cause tension and conflict between them in the form of a trade war.
- VAT changes.
Value-added taxes (VAT) are fees assessed on shoppers at each step of the production chain of an item when it obtains increased worth. Brexit may well have an effect on the value-added tax regulations in both the United Kingdom and the European Union. This is true, with Value Added Tax (VAT) regulations becoming a major area of disagreement during the most recent Brexit talks.
What do I need to do to prepare for new customs regulations?
Apply for a U.K. and EU EORI number to clear goods
Until now, you may have only had one figure for the imports and exports from the U.K., but come January 1st, you will more than likely require an independent Economic Registration and Identification (EORI) number for both the U.K. and the EU. An EORI number is used when filling out customs declarations and it is unique for each exporter, allowing them to be identified in customs processes and related paperwork.
No matter which region your business is situated in, if you offer products to the U.K. and EU, then you will have to possess two numbers: a U.K. one. Obtain an EORI registration with HM Revenue and Customs, as well as an EU EORI.
Update customs documents for new customs compliance
Once you have acquired your distinct EORI number, you’ll need to include it in your customs papers. When you bring goods from abroad, you must declare to the customs officials the amount of VAT that needs to be paid, so they know you are responsible for taking care of the taxes.
Nevertheless, alteration to other forms is not the only requirement – customs declarations should also be adjusted to cover details and facts surrounding cross-border trading. This project looks like it will be simple to finish as many countries require the same information on the declaration, such as the European Union Registration and Identification number, how much Value-Added Tax has been added to the shipment, your authorized Value-Added Tax number, the Harmonized System coding system, the nation which the items were shipped from, and the sum of each product in the delivery.
Know your commodity codes
It is necessary to be aware of the set international product identification codes (known as Harmonized Systems, or HS codes) for each item you are vending. If you are not careful, you could end up incurring incorrect duties or have your items halted by customs.
There are tens of thousands of codes in existence. Brexit makes this even more convoluted; the UK has a six-digit code, while the EU utilizes a six-digit code plus two extra numbers.
What do I need to communicate with my customers?
Update your customer terms and shipping policy
The taxes for sending items abroad are going up, so you have two real choices. You can figure out how to ascertain the proper cost for items you are selling to customers. Or, you can have your customer pay them. Choosing the latter choice may seem simple, but it can leave an unfavorable impression on customers.
Asquith warns that if you shift your responsibilities to your customers, you will not have people coming back.
No matter what plan you choose, you need to refresh your client terms and conditions, which incorporates your shipping approach. This makes it clear who is responsible for covering any tariffs or import VAT and makes sure that your customer knows what taxes they may be charged with.
The two most popular international commercial terms are as follows:
- Delivered Duty Paid (DDP): This indicates the seller is responsible for any import costs. It keeps your customer from paying unexpected fees but does require you to manage to file the associated taxes. It’s a good idea to note in your shipping policy that you are collecting and paying customs duties and import taxes on behalf of your buyers.
- Delivered at Place (DAP): This indicates that the seller is only responsible for shipping the product, while the customer has to absorb any import costs. This will save you from filing taxes but may catch your customer by surprise and lead to delayed or returned shipments.
Alter your returns and exchanges policy
You will have to pay customs duties and import taxes not only on items you are selling but also on any merchandise that is returned or exchanged.
This implies that if you’re selling garments or any other item with a high rate of returns, you could get penalized regardless of if you have chosen Delivery Duty Paid or Delivery at Place. If you decide to implement DDP (Delivery Duty Paid), it is recommended that you verify if any duties and taxes collected at the time of import can be reimbursed.
Look into new marketing, manufacturing, and labeling standards
One last thing to consider is health and safety. If your items are manufactured and constructed in the U.K., they could need to be re-verified for distribution within the European Union—and the other way around. You may need to make changes to the way you produce, label, or advertise your products.
Prepare for EU-region domain withdrawals
Verify with the registry before obtaining a domain name from any European Union country (e.g. .fr or .it) that there are no requirements or procedures to preserve your right to ownership. If a domain should be canceled, it is essential to purchase and set up a non-EU-specific domain before the expiration day (January 1, 2021).
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