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Brexit and Rules of Origin – what this means for your SME

Brexit SME

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The 1 January 2021 saw many changes introduced following Brexit that will impact many companies across the UK. Businesses, particularly SMEs that move goods between the UK and the EU, need to be aware of the Rules of Origin that have come into force. Mirek Raba, Supply Chain Strategy and Diversification Advisor at the Leeds City Region Supply Chain Programme, explains what you need to know about the Rules of Origin introduced following Brexit and how it will affect your SME.

 

The EU-UK Trade and Cooperation Agreement concluded between the EU and the UK sets out preferential arrangements in a number of areas. However, the most significant change for an SME in trading with the EU is the requirement of Rules of Origin. The UK government states that “The Rules of Origin requirements are some of the most important provisions that your business needs to understand and comply with, under the UK’s deal with the EU”.

If you own an SME in the UK that trades with the EU, here’s what you need to know:

  • The Rules of Origin for trade between UK and EU came into force from 1 January 2021. The European Union (EU), Great Britain (GB) and Northern Ireland (NI) are now three different custom territories, hence the need to establish the origin of goods for custom processes.
  • Any UK or NI business that wants to trade with the EU under preferential tariff must declare its goods’ origin. For the product to be certified as originated in the UK, it must have a minimum of 40-50% of domestic UK value-added:
  • either by the content and/or particular processing (it must be specified what the activity that adds value is)
  • and/or content must come from the goods of different tariff classification than the finished goods.

 

How to move goods between the UK and EU

EU content can be accumulated and added to UK content for determining UK origin. This works vice versa for EU goods. The EU content is determined based on Supplier Declaration or Long-Term Supplier Declaration forms. If this affects your business, local advice is available at the Mid Yorkshire Chamber of Commerce as well as the Government website on how to move goods between the UK and the EU

It is important to note that all products should be analysed individually. In some cases, the tariff will be less costly than implementing a process to prove the origin. Therefore, the analysis of each situation is key to determining trade-offs, which is down to details related to commodity codes.

Some of the goods can be duty-free when trading with the EU. However, UK goods can only be duty-free if the company can provide proof of UK origin that proves compliance with Rules of Origin. This can be in the form of importer declaration or exporter declaration; or by long term supplier declaration (only in case of EU/UK based suppliers) or specification of the adding value activity. It is important to note that repackaging activity is excluded from the VA, hence does not contribute to the minimum content requirement.

 

Fundamental changes in trading between UK, EU and NI

The fundamental change in trading between GB, EU, and NI is that the Trade Deal excludes diagonal accumulation of content. The diagonal accumulation means that no third country’s goods can be traded under a preferential tariff between the UK and the EU. Third country means all other countries not included in the trade deal between UK and the EU.

This is important when you plan to sell to the EU goods that even partially come from outside the EU and UK. In some cases, transport mode will have an impact on Rules of Origin as well. If this affects your business, we recommend enlisting specialist guidance for support.

The Rules of Origin will impact the design of supply chains as it will force some businesses to redesign supply chains to source more locally in the UK or EU to save the cost related to Rules of Origin if the trading with EU is a significant element of the business. The early estimate is that compliance with Rules of Origin could save any business as much as 5-7% of the cost. Therefore, it is essential to understand how Rules of Origin work and how to comply with them.

 

Does the Rules of Origin affect your business? For guidance and support talk to an advisor from Leeds City Region Supply Chain Programme today.

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