"Styling Out": the new trends for importing and exporting fashion post-Brexit by Nicola Simmons
Now that the UK has left the EU, fashion retailers exporting and importing goods between the UK and EU will likely encounter many changes to their businesses in general, or at least to specific elements of their supply chain. The changes impact sales VAT, import VAT and customs duty, as well as the controls and procedures at the borders.
On 30 December 2020, the UK and EU entered into the Trade and Cooperation Agreement. Whilst co-operative in nature, the terms of the Agreement are prescriptive, and guidance is thus far limited. The key considerations for Fashion importers, exporters (and indeed their customers) post-Brexit, are as follows:
Sales VAT
Where goods are sold in the UK to be exported from the UK by the supplier within the appropriate time limit (which is often three months, with sufficient evidence of the export date), the sale should be a zero-rated supply for UK Sales VAT purposes. Otherwise, UK sales VAT would apply in the normal way at up to 20%. As before, there are however reduced or even zero rates applied to certain supplies, such as children's clothing and footwear.
For savvy international customers that used to rely on VAT-saving schemes such as the Retail Export Scheme, their experience in the UK will now be significant different. Essentially, if a buyer is visitor to the UK and buying goods for personal use, zero-rating will no longer apply on their sale, and VAT will be charged (and usually not reclaimable) at up to 20%, even if they export the goods from the UK shortly thereafter.
Import VAT and Customs Duty (together, import duties)
The Trade and Cooperation Agreement forbids the imposition of tariffs, quotas, and import/export taxes at the UK-EU border, if the goods "originate" in the UK or the EU. Interpretation of that rule will however depend on the receiving jurisdiction, and its local rules, rates and procedures.
Where duties are payable, the importer of record is usually liable to pay them. As a result, where goods cross the border, you must consider the following:
The receiving jurisdiction(s) may impose import duties on certain goods based on their value, subject to exceptions and any applicable reliefs in that jurisdiction.
There will be new customs, safety and regulatory checks, which will likely to cause delays and friction when moving certain goods across the border, especially in the early part of 2021.
Reliefs for UK import duties have remained, largely intact, such as Temporary Importation Relief and Inward Processing Relief. To apply these reliefs, it will be more important than ever to ensure the conditions are satisfied, and the relief claimed, in advance. In light of the ongoing effects of the COVID-19 pandemic, there may be further delays in this regard.
Practical points to consider
Fashion retailers must obtain an EORI number that starts with GB in order to commercially import and export goods from England, Wales and Scotland. The procedure in Northern Ireland may differ.
Exporters may require licences to export certain goods, depending on their type, classification, age and value.
A key issue for fashion retailers to determine in the first instance is the "origin" of the goods – meaning where the goods are viewed as having been created – as this dictates how the goods are treated within the EU and the UK. The rules in this area are complex, and fact-specific. Where for example, an item of clothing is created from different materials, each of which is imported from a different jurisdiction, the analysis can be complex.
To avoid any delays or queries at the border, it is best to prepare in order to get ahead of this new "trend".
About the author
Nicola is a solicitor at Mishcon de Reya, London. She is a hybrid private and corporate tax adviser. She advises private individuals and business alike on estate planning, tax residence, domicile, mergers and acquisitions, corporate restructuring and financing, and business taxes, as well as imports and exports. Nicola is a Chartered Tax Adviser, and ranked as a "key lawyer" in the Legal 500 2020.
This article has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your tax, legal and accounting advisors before engaging in any transaction.