During the transition period, the supply of goods and services between the UK and the EU remains governed by EU law and so for the immediate future such supplies can continue in the same way as before the UK left the EU.
After the end of the transition period, however, it is unclear precisely what will replace the current regime. If a free trade agreement is reached between the EU and the UK, this should set out the basis on which at least some goods and services can be supplied between the UK and EU Member States. However, given the limited time remaining to conclude a free trade deal, it seems unlikely that any agreement reached will cover the vast range of goods and services traded between the EU and the UK in full.
In the absence of a trade agreement, or where any agreement reached does not cover particular goods or services, the supply of goods and services between EU Member States and the UK will be governed by UK and EU and/or Member State domestic law as applied to other third party nations. In these circumstances, as members of the World Trade Organisation, the UK and the EU's ability to change their rules in relation to the supply of goods and services from one to the other will be subject to WTO Rules.
The most significant of these rules is the "most favoured nation" rule:
- Unless an exception applies, this rule says that a WTO member must trade with all WTO members on equal terms.
- Any advantage granted to one WTO member must immediately be granted to all other WTO members (and, equally, a restriction cannot be imposed on one WTO member that is not imposed on all others).
- The primary exceptions to the most favoured nation rule are rules applied as a part of a customs union, a free trade agreement, or an interim agreement relating to a customs union or free trade agreement. Where there is no such agreement, the UK and the EU will be unable to grant any benefit in relation to (or impose any restriction on) the supply of a good or service between them without doing the same for all other WTO members.
Businesses will need to follow closely the various trade agreement negotiations and assess carefully the tariffs and duties that may apply to the goods or services that they import/export. These negotiations will inevitably continue after the end of the transition period, possibly for some years and so the costs of doing business with overseas suppliers or buyers will be in constant flux for some time.
From the end of the transition period, absent an agreement, exports of goods to/from the EU will be treated like exports to/from the rest of the world. Exporters to the EU will need to pay customs duties under the EU wide common customs regime on entry into the EU and appropriate customs duties will need to be paid on imports into the UK (the UK Government is promising that many of the tariffs previously applied to non EU goods will be reduced and the regime applied to agricultural products, simplified). UK importers of goods from the EU without a UK Economic Operator Registration and Identification Number (EORI) will need to obtain one.
From a VAT perspective, provided appropriate proof of export is provided, exports of goods to the EU from the UK can be zero-rated, but import VAT paid on entry into the EU. Importers into the UK will pay VAT under a postponed accounting system rather than on entry into the UK. Most services provided by UK suppliers to EU businesses will generally be zero-rated from the UK but local VAT collected under the reverse charge where the EU customer belongs. Similarly, no local VAT will be paid by an EU supplier of services to a UK business, but the UK reverse charge will operate to collect UK VAT.
Recent Government announcements have suggested a phased introduction of border controls vis-à-vis imports from the EU. Initially controls will apply only to alcohol and tobacco. In April 2021, controls will apply to products of animal origin and from July 2021 to all products. Tariffs on goods imported prior to July 2021 will be payable, but on a postponed basis. The arrangements for imports to Northern Ireland remain unresolved and, as regards imports into the EU, there are currently no signs of a phased introduction of customs controls and tariffs.