The UK left the EU on 31 January 2020 in accordance with the terms of the Withdrawal Agreement. At the time, both sides agreed on a transition period until 31 December 2020, during which EU law continues to apply to the UK.
The purpose of the transition period is to:
- Ensure that all necessary measures and arrangements are in place so that the Withdrawal Agreement can be implemented as of 1 January 2021.
- Negotiate an agreement on a new partnership between the EU and the UK. The EU and the UK have been using this period using this period to negotiate the terms of their future partnership.
- Ensure readiness at the end of the transition period for 1 January 2021 when the UK ceases to participate in the EU’s Single Market and Customs Union, Union policies and programmes and to benefit from the Union’s international agreements unless otherwise regulated in the Withdrawal Agreement or under the terms of a new partnership agreement
During the transition period:
- EU and UK companies have continued to trade as normal until 1 January 2021
- EU & UK citizens have been able to travel freely between both jurisdictions respectively
- The UK has still implemented EU legislation.
Looking ahead from 1 January 2021 and action to take now
The transition phase will end on 1 January 2021. From that point on, the UK will no longer apply the rules of the European Union, the Single Market or the Customs Union save to the extent agreed under the Withdrawal Agreement and under a EU-UK Trade and Cooperation Agreement (TCA) agreed on 24 December 2020 or any other new supplemental agreements or declarations subsequently agreed pursuant to the framework of the TCA.
The Withdrawal Agreement continues to remain in force post 31 December 2020 and covers such issues as the rights (guaranteed) of EU citizens in the UK, a financial settlement between the UK and the EU, addresses certain separation issues to ensure an orderly winding - down of previously existing arrangements e.g. these range for example from protecting existing IP rights to the use of data and information amongst many other things. On 17 December, the EU-UK Joint Committee met to endorse all formal decisions and other practical solutions related to the implementation of the Withdrawal Agreement which can now be implemented with effect from 1 January 2021 including a Protocol on Ireland and Northern Ireland.
On 24 December 2020 the text of a EU-UK Trade and Cooperation Agreement including free trade arrangements has been agreed by the UK and the EU negotiating teams which can be essentially divided into three main parts:
- A Free Trade Agreement: This includes a trade agreement for free, fair, sustainable trade, with zero tariffs, zero quotas and a broad economic, social and environmental partnership. This part of the agreement covers therefore not just trade in goods and services, but also a broad range of other areas, such as investment, competition, State aid, tax transparency, air and road transport, energy and sustainability, fisheries, data protection, and social security coordination;
- A new partnership for citizens' security: The TCA establishes a new framework for law enforcement and judicial cooperation in criminal and civil law matters and
- A horizontal agreement on Governance: To give maximum legal certainty to businesses, consumers and citizens, a dedicated chapter on governance provides clarity on how the agreement will be operated and controlled.
The TCA runs to over 1200 pages and is a complex document that will take some time to fully understand. Some immediate points at a glance:
- Work on the basis that the TCA will come into effect on 1 January 2021 even though it will need to be ratified in order to bring it into UK and EU law. The EU Commission proposes to apply the Agreement on a provisional basis from 1 January 2021, for a limited period of time until 28 February 2021. This is to give the European Parliament time to exercise its right to scrutinize the TCA. In parallel the 27 Member States acting by unanimity agreed to adopt a decision to approve the TCA on 28 December 2020. The UK Parliament is expected to ratify the TCA in an expedited process on 30 December 2020.
There will be zero tariffs on quotas and goods traded, provided agreed rules of origin are met. To be noted there are options to apply tariffs in the event of regulatory divergence over time.
Continue to implement your BREXIT plans including for customs and VAT regardless of the terms of the TCA and continue to prepare to ensure you can continue to trade withe UK from 1 January 2021. The UK’s decision to leave the European Union will trigger fundamental changes in the way organisations do business with the UK or from the UK regardless of the terms of the TCA which is likely to create friction and does not eliminate custom checks for EU 17 and UK Trade.
On trade in services, the EU and the UK have agreed to a level of openness going beyond the provisions of the WTO General Agreement on Trade in Services (GATS), but reflecting the fact that the UK will no longer benefit from the freedom to supply services across the EU. The TCA completely omits the financial sector. British firms are now waiting for the EU Commission to recognise the British regulatory framework for financial services as equivalent to European conditions in order to continue offering certain services from London.
An adequacy decision on data protection is not the subject of the TCA. This is expected to remain a unilateral decision of the EU and it is not currently anticipated that this will be subject to negotiation.
On social security coordination, the agreement aims at ensuring a number of rights of EU citizens and UK nationals. This concerns EU citizens working in, travelling or moving to the UK and to UK nationals working in, travelling or moving to the EU after 1st January 2021.
Further overview information in an infographic on the TCA is provided by the EU https://ec.europa.eu/info/sites/info/files/eu-uk_relations_from_the_uk_referendum_to_a_new_trade_and_cooperation_agreement_-_infographic.pdf .
Both the UK Government and the EU Commission has worked to inform citizens and businesses of what is needed to prepare for the end of the transition period. The EU has published over 100 sectoral guidance notes and a checklist of readiness preparedness most recently in August 2020. The UK Government has published a ”Get Ready for BREXIT tool” Brexit transition - GOV.UK .
You will find BDO’s priority checklist here. Further publications on a wide range of topics related to Brexit can be found below.
In particular BDO continues to strongly advises trading businesses to prioritise Brexit preparations. Citizens and business should be aware that:
- 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 and implemented and
- also from 1 January 2021 preparations can and should continue.
BDO is read to help you through the process. We keep our clients informed on any developments and changes, identify the need for action and provide support and assistance with implementation. We have compiled an overview of the areas most likely to be affected and will continue to expand it. We offer you competent contacts for all relevant areas and, through our international network – in particular together with BDO LLP in UK – ensure that you cope well with your very specific Brexit challenges.