The key legal implications of the EU-UK Trade and Cooperation Agreement

This vast and detailed agreement consists of 1,246 pages and sets out how the relationship between the EU and the UK will be governed after 1 January 2021. The TCA encompasses everything from trade, transport, data protection, immigration, judicial matters and law enforcement.

Business owners now need to urgently address the challenges that their company will inevitably face as a result of Brexit.

We have put together the below key implications of the TCA for individuals and companies to prepare for the outcomes of Brexit and trading with the EU. Individuals buying products from the EU need also to understand the tax changes that have been widely reported on.

Key implications of the TCA on businesses

The introduction of the TCA will, of course, mean different outcomes depending on the nature of your business. A key consideration for your company may be if you provide products or services, if you operate within different countries outside of the UK within the EU, if you currently import and export goods, etc.

We will start to experience the legal consequences of Brexit as time goes on. However, the key outcomes of the TCA that businesses will need to be aware of are:

Zero tariffs and quotas

The TCA has agreed tariff-free and quota-free access for goods traded between the UK and the EU, aiming to help the UK economy. However, for an exported product to qualify for tariff-free trade under the TCA terms, it must have either been wholly obtained or been subject to a large amount of processing within the EU or UK.

Therefore, it would seem that the TCA will only benefit goods that can legitimately claim to have been made in the EU or UK. These are known as “rules of origin”. This means that if your business model involves importing large quantities of shoes from, for example, China into the UK, and then exporting the goods to retailers across the EU, then tariffs may now be levied twice.

When the clothes arrive in the UK, and then again when they enter the EU, the clothes are Chinese, not British or EU originating.

Although it may not be difficult to prove that Aberdeen Angus beef is from the UK and would qualify for tariff-free trade, the difficulty may arise when you export goods that contain parts sourced from different countries, such as a car.

If I am sending goods abroad, do I need to fill out a customs form?

Yes, it is important to note that trading goods to and from the EU will now become a lot more burdensome due to a series of new customs and taxes. To send goods across the new UK-EU border, a customs declaration for your imports or exports will now have to be submitted to HMRC.

This will always be the case if you are sending goods (including gifts) to a country outside the UK. Except when sending items from Northern Ireland to the EU, where no customs declarations are required for sending gifts or goods.

You will need to complete customs declarations form (CN22 or CN23) for gifts and goods sent abroad.

How do I fill out a customs declaration form?

There are two types of form, depending on the value of the items sent. You will need to make sure that you use the appropriate one:

• For items with a value up to £270 use customs declaration form CN22

• For items with a value over £270 use customs declaration form CN23

Please note that depending on the EU member that you are sending the goods to, this will include fees based upon the member state’s local content requirements.

Customs clearance charges and fees may therefore be payable on items/goods entering the destination country, including the EU from the UK. These depend on the contents’ value.

If you are the sender, you will need to decide how the recipient will pay these as the parcel won’t be released until payment has been received. This has caused buyers of products from the EU to pay a VAT charge and additional handling costs by the courier. Sometimes half the price of the product purchased has been added on top!

If you have purchased goods online, this will also include packages containing products from EU e-commerce companies, second-hand goods from eBay or even gifts from other individuals. Be aware of these charges that are not always readily identified. However, they are payable.

Will there be tax payable on the goods that I receive or send to and from the EU?

Yes. Although the tariff-free system in the UK is designed to encompass all goods worth under £135, the UK government is now applying VAT (sales tax) at 20% on goods passing the border from the EU. Again, be aware of the recipient being charged this extra fee when sending or receiving a package that will be crossing the border.

For example, if you were to purchase a £600 designer handbag from Paris with a £25 delivery fee, you may still be charged for VAT on top of this once the handbag reaches the border. As the bag is worth more than £135, you would not be charged this fee when you purchased the bag online. However, instead, when you buy more expensive items online from the EU, the VAT is applied when the items reach you.

Due to the rule of origin, it may be the case that the handbag is not made with French materials, and therefore the specific fees in respect of the rules of the material’s origin will apply, which is where these new rules become complicated. The bag may cost another £300 in hidden charges! If you are buying an item over £135, it is always worth asking the seller if any additional customs charges will apply.

The government hopes to increase the UK economy with this strategy, to encourage buyers and sellers of goods to choose to trade within the UK to reduce costs, and if they choose to trade within the EU, they will have to pay the relevant fees and tax.

Due to this, if you own a company that imports and exports goods regularly, you may need to think about getting a local agent to reduce costs. Although this is intended to promote UK commerce, for many UK business that currently utilises agents in EU member states, this change in legislation may be too costly and burdensome.

Trade in services

The TCA contains non-discriminatory obligations to ensure that service suppliers based in the EU will be treated no less favourably than those based in the UK. This enables EU suppliers to receive more favourable treatment than that granted to service suppliers of other countries outside of the EU or the UK that do not have similar regulations or agreements with the EU in place.

These provisions will provide many UK service suppliers with legal guarantees that they will not face barriers to trade when selling into the EU and will support the mobility of UK professionals who will continue to do business across the EU.

On the other hand, nearly half of the UK’s exports to the EU are services. As an inevitable consequence of leaving the EU single market, UK service suppliers will lose the automatic right to offer services across the EU. They will have to comply with the host’s rules in each respective member state, and companies may have to establish themselves within the EU to continue operating.

This also puts an end to mutual recognition for professional qualifications in areas such as law, architecture and engineering. Now you will be required to have these qualifications according to the member state you choose to operate in. With some lenience, the TCA does, however, allow for the EU and UK to agree, on a case-by-case basis, additional arrangements for the mutual recognition of certain professional qualifications.

Immigration

The new rules implement significant changes to the UK’s previous immigration policies. From 1 January 2021, there is now a points-based system in place that will allow the UK to reduce overall levels of migration and allocate top priority to those with the highest skills entering the country to live, such as doctors, engineers and other careers of a highly-skilled nature.

In respect of lower-skilled workers, the government has announced that it will not “introduce a low skilled or temporary work route. We need to shift the focus of our economy away from a reliance on cheap labour from Europe”.

Despite this comment from the government, all hope is not lost for low skilled workers. Under the new legislation, the definition of skilled workers has been extended to comprise jobs equivalent to A-Level education standards and not just graduate degree level it was previously.

If you are employing a ‘skilled worker’, then they will be assessed based on the new points-based system containing the following mandatory requirements:

– You must be able to show the worker has an approved sponsor;

– You must demonstrate that they have been offered a job at the correct skill level; and

– Be able to speak fluent English.

After confirming that the above criteria are satisfied, the employer will need to attain further points based upon the workers’ salary, education level and whether the job occupation is in shortage. The higher the answers are to these points, the higher points will be acquired. For example, a salary above £25,600 will earn 20 points. If the salary is within the range of £23,040 – £25,599, it will earn 10 points. Any salary below £23,039 will not earn any points.

• Visas

The TCA permits visa-free travel for short visits from the UK to an EU member state for up to 90 days in any 180-day period (except for Croatia, Bulgaria and Ireland, whereby there is no time limit on trips to these countries currently). After this period, UK nationals will require a visa to stay in an EU member state.

UK travellers to the EU will need their passports to have at least six months’ validity remaining on the day of entry and must be less than ten years’ old. Please note that if your passport is expiring in less than six months, this may not be deemed as valid, and you will not be able to enter the country.

• Data Protection

The UK regained full autonomy over its data protection rules from 1 January 2021. However, the government has chosen to implement a new data privacy law called the “UK General Data Protection Regulation” (UK GDPR) that is almost completely identical to the EU’s GDPR. The UK GDPR will continue to be read alongside the Data Protection Act 2018 to govern the processing of all personal data inside the UK.

The UK GDPR requires your website to:

– Obtain explicit consent from users before processing their personal data via cookies and third-party trackers; and

– Safely store and document each valid consent; and

– Permit users to change their consent in the same way that gave it.

It also provides a new set of rights to UK users; the most important is the right to delete data and the right to have data corrected.

Although the UK is now officially considered “a third country” under the EU’s GDPR (i.e. a country outside of the EU without a data adequacy decision), a provision in the TCA secures an interim period of six months of unrestricted data flow between the UK and the EU. This interim data transfer provision means that even though the UK is no longer part of the EU, and therefore not under the EU’s GDPR – personal data is allowed to be transferred between the UK and EU unrestricted in the same way it was before.

What is an adequacy decision?

Data adequacy is a status granted by the European Commission to countries outside the European Economic Area that provide a personal data protection level comparable to that provided in European law.

This interim period has been allowed until June 2021 with the intention to reach a data adequacy decision before it ends. With an adequacy decision, at the end of the period, the UK would be placed on the “White List”, and personal data can be transferred to a recipient in a “White List” country on the same terms as if the recipient was located in the EU.

On the other hand, if the UK is regarded as inadequate and therefore not awarded an adequacy decision, then the transfer of data will only be able to occur with certain safeguards in place. This would have major consequences for both UK and EU businesses if this is the case.

We will, of course, report on this matter closer to the end date when further developments arise.

How can you protect your business?

Although the most suitable routes of protection will be dependent on the nature of your business, there are several ways you can protect your business, such as:

• Conduct a Brexit risk assessment and identify how your business is affected by the EU;

• Implement a business contingency plan;

• Develop an effective retention strategy;

• Think about relocating your company to the EU;

• Implement and log data mapping exercises of existing relationships within the business (for example, with manufactures and suppliers) which involve an international transfer of personal data;

• Review current privacy documents and identify if they contain any reference to EU law or EU related terms, as these will need to be amended to reflect new UK legislation;

• Ensure any EU national workers have registered for the EU Settled Status scheme;

• Obtain a sponsor licence to sponsor non-EU nationals; and

• Invest in apprenticeships with UK nationals.

Preparing for change

Now that the TCA has been agreed upon, businesses must act immediately to identify how the changes will affect their operations before making the changes to systems, processes, staffing, and potentially shifting their business model.

We strongly suggest that you consider the above points. If you require more information or assistance to protect your business adequately, please do not hesitate to contact our corporate and commercial department at enquiries@solegal.co.uk.