The UK left the EU on 31 January 2020 in accordance with the terms of the Withdrawal Agreement. The transition phase during which EU law continued to apply to the UK will end on 1 January 2021. From that point on, the UK will no longer apply or benefit from the rules of the European Union, the Single Market or the Customs Union as well as all EU policies and international agreements, save to the extent agreed under the Withdrawal Agreement and under a new comprehensive EU-UK Trade and Cooperation Agreement (TCA) agreed on 24 December 2020.
With the finalisation of this extremely important Trade and Cooperation agreement, BDO Germany welcomes the avoidance of a no-deal scenario at the last minute and the return of some certainty into the business planning especially in view of the current Covid-19 pandemic and its worldwide economic consequences. Businesses will now need to pore over the considerable detail behind the historic TCA to fully understand the implications.
Citizens and businesses should work on the assumption that the TCA applies from 1 January 2021. It is set to be approved unanimously by the EU 27 Member States and ratified by the UK parliament by the 31 December. The EU will apply the Agreement on a provisional basis until 28th February to give the EU Parliament an opportunity to scrutinise and approve it.
Even with the TCA in place, this is the start of a new relationship and there will be big changes with far reaching consequences from 1 January 2021. Yes, the TCA is an unprecedented free trade agreement which provides for zero tariffs on quotas and goods traded, provided agreed rules of origin are met and standards do not diverge. Yes it contains provisions for self-certification, self-declarations, mutual recognition of trusted trader programmes and a common definition of international standards, all of which are designed to simplify new customs procedures and prevent unnecessary technical barriers to trade. However, in practice there will inevitably be increased barriers to trade which can create friction including the reintroduction of customs checks on both sides of the Channel. In the short term it is imperative that trading businesses continue to prioritise Brexit preparations to minimise disruption throughout their supply chain. This ranges from checking if custom duties will apply regardless of the CTA, protecting cashflows, to ensuring you get customs and VAT paperwork right and reviewing contracts.
"Regardless of what you think about Brexit, it is now here and it makes sense from a business perspective to prepare for the contingencies and developments that still exist, especially in light of the agreed Trade and Cooperation Agreement. If you delay preparation further, you may end up losing out to competitors who have already done the groundwork. It's never too late to start taking the necessary steps. You will not be alone we are already receiving numerous enquiries" Jane Evans, BDO AG Chartered Accountants
In the medium term businesses should be aware that the TCA represents the beginning not the end. Even though a Trade and Cooperation agreement has been reached there will continue to be negotiations and finalisation of detailed issues and a continuous stream of relevant measures being agreed. There is a dedicated chapter on governance in the TCA which provides clarity on how the agreement will be operated and controlled. This includes the creation of a Partnership Council and 19 joint Committees and four Working Groups. Future supplemental agreements or declarations will also be possible and likely under the terms of the framework TCA.
Thankfully the best news is that the hard work to rethink business’ trading with the UK and or the EU out of the UK and even realise new opportunities can now take place on a much more benign road.
With over 1,900 employees at 27 locations, BDO is one of the leading firms for auditing and audit-related services, tax advice and business law advice as well as advisory in Germany. We are here to help our clients on BREXIT we provide ongoing information on any developments and changes, identify any need for action, and provide support and assistance with implementation. We offer competent contacts for all relevant areas and ensure through our international network - especially together with BDO LLP in the UK - that our clients are able to manage any specific challenges which BREXIT throws at them.
BDO Germany and BDO UK together have nearly 5.500 employees in 45 offices in Germany and the UK providing tax, audit and assurance, and a wide range of advisory services. Both are proud founding member firms of BDO International, which with more than 91.000 employees in 167 countries is the only globally active auditing and consulting organization with European roots