| Topic | Transition Period | After Transition Period (from 1 January 2021) |
|---|---|---|
| VAT; Customs Duties | The VAT System Directive and the other directives on the European VAT system are still binding on the UK during the transition period. As the relevant EU directives have already been transposed into UK domestic law, these laws will generally continue to apply during the transition period. | We expect the UK to retain the existing VAT system inside its own borders initially without any major modifications also once the transition period has ended. There are several indications, however, that once the transition period has ended the UK VAT system will depart significantly from the European system in the medium term. Companies should monitor events carefully in order not to miss any specific developments or associated need for action in the UK (e.g. extensions to tax exemptions or abolition of exemptions). European case law and legislation can no longer be regarded as a reliable guide once the transition phase has ended. |
| During the transition period, the general principles governing intra-community movement of goods and services will remain applicable in the UK. | All movement of goods and (in some cases) services to and from the UK will be based on substantially different rules once the transition period has ended. The consequences will vary depending on the individual company; in the case of banks that provide services to UK customers, for instance, it could lead to an increased entitlement to deduct input tax, while other companies could face increased administrative effort when exporting to the UK. A special regime applies to Northern Ireland, which continues to be treated as belonging to the Community territory. The conclusion of the EU-UK Trade and Cooperation Agreement means that goods originating in the EU or the UK generally qualify for duty-free treatment. Goods that have previously been imported from a third country (e.g. the US, China) do not qualify for preferential origin. Such goods generally incur customs duties twice. Despite the conclusion of the Trade and Cooperation Agreement, the introduction of a new customs border risks causing considerable delays. |
