Brexit Update

We have out some key headline points summarising the current status of Brexit and why ROI businesses now need to create or refresh Brexit action plans to mitigate risks:

Up to date as at: 10th July, 2020
  1. Transition Period: On 31 January 2020, the UK left the EU which started an 11-month “transition period” to 31 December 2020. During this period, the way Ireland trades with the UK will not change. The deadline for the UK to request an extension to this period has now passed. This means that the UK will effectively be treated as a third country outside of the EU from 1 January 2021.

  2. Free Trade Agreement (“FTA”): It was hoped that an FTA would be agreed between the EU and UK during the transition period which would provide for preferential trading arrangements with little or no tariffs and checks on EU/UK goods moving cross border. Negotiations were delayed due to Covid19 restrictions but parties continue to have very different views on significant issues which suggests that the likelihood of an FTA being in place by the end of 2020 is low.

  3. Borders: The final Withdrawal Agreement (“Brexit deal”) included a protocol which provided that a customs border will effectively be created between Northern Ireland (“NI”) and Great Britain (“GB”) to ensure no hard border on the island of Ireland at the end of the transition period. NI will remain aligned with the EU on goods and apply EU tariffs in NI except for movements wholly within the UK (for as long as NI wishes this system to continue). Certain goods brought into NI from GB will be checked in NI and EU customs duty will be payable if the goods are “at risk of being subsequently moved into the EU”. This protocol will come into effect from 1 January 2021 regardless of whether an FTA is agreed.

  4. Trading after the Transition Period: The EU/GB cross-border trading landscape will change significantly from 1 January 2021 with the removal of frictionless trade between Ireland/EU and GB. These changes will affect businesses in different ways, depending on the specific business sector. However, most Irish businesses will be impacted directly or indirectly from these changes and may need to adapt to these changes quickly if they intend to continue trading with or through GB.

    Areas of change will include (but are not limited to) customs and VAT:

(i) Customs: A key point is an FTA will not prevent customs obligations arising on trade between the EU and GB from 1 January 2021. This means that:

    • Customs duties could potentially arise on goods moving between the EU and GB depending on the origin of the goods. Where an FTA is not agreed, World Trade Organisation (“WTO”) rates will apply to imports into Ireland from GB and the recently published UK Global Tariff will apply to import into GB from the EU.

    • Customs reporting will be required for all movements of goods from ROI to GB and from GB to ROI (albeit the UK intend to introduce customs reporting and controls on EU goods on a phased basis from 1 January 2021 to 30 June 2021).

    • Customs checks may also be required for certain goods.

(ii) VAT: The VAT treatment of transactions between ROI, NI and GB is expected to become more complex from 1 January 2021.

    • It is not yet known if postponed import VAT accounting will be allowed. If not introduced, Irish businesses will have to pay import VAT upfront on goods imported into Ireland and then seek to reclaim the import VAT paid in its VAT return, resulting in VAT cash flow costs.

    • NI will be part of the UK VAT area but EU VAT rules will apply, giving rise to a dual VAT system. Different VAT treatments will apply depending on whether goods or services are sold and if goods, whether those goods are shipped to NI or GB. If the wrong VAT treatment is applied, the Irish business could be penalised.

    • Depending on the transaction incoterm, VAT registration obligations may be triggered.

What actions should be taken now?
As Brexit continues to be a moving feast, the next steps for any Irish business will depend on the extent of the Brexit planning carried out to date:

    • Yet to commence Brexit planning: We strongly recommend that you review your supply chain, operating model and contract terms and consider the potential changes (if any) that may need to be made to your current operations.
    • Brexit action plan prepared prior to late 2019: Steps should now be taken to refresh your action plan in light of various developments, including the revised Withdrawal Agreement, the NI protocol and the UK Global Tariff.
    • Brexit action plan prepared in 2020: Your action plan may need to be updated to reflect the impact of the UK Global Tariff published in May 2020 and the increased likelihood that an FTA will not be agreed before 1 January 2021.

Contact Us

Gilroy Gannon has been actively involved in advising a large number of companies in various industries on the impact of Brexit on their business and potential actions which could be taken to mitigate the cost of Brexit.

Please let us know if you would like to discuss Brexit and/or any of the points noted above or if you require a refresh of your previous Brexit action plan in light of recent developments.

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