Talks had continued from 6 July in London between the UK and the EU on a post-Brexit trade deal but ended earlier than expected. Negotiations also ended earlier than expected the previous week in Brussels, and EU chief negotiator Michel Barnier issued a press statement on 2 July that acknowledged that "serious divergences remain".

He described the UK's negotiating red lines: "no role for the European Court of Justice in the UK; no obligation for the UK to continue to be bound by EU law; and an agreement on fisheries."

Meanwhile, the EU maintains there will be no economic partnership without "robust guarantees for a level playing field — including on state aid" as well as a "sustainable and long-term" fisheries solution and an overarching institutional framework and effective dispute settlement mechanisms.

Both sides are keen to agree a post-Brexit deal, especially since the UK ruled out in mid-June an extension to the transition period beyond 31 December 2020.

For Caroline Turnbull-Hall, PwC director of regulation and legal issues, the question is what that deal will look like. "Both sides have spoken very positively since February about a comprehensive and ambitious free trade agreement, but time is running out," she said.

She suggested that a "very simple deal that perhaps covers tariffs and quotas" is possible, or "an outline deal which has a schedule attached to it with other issues [to be looked] at later on". She added: "There is always the possibility that there could be no trade deal and we could revert to trading on World Trade Organization [WTO] terms."

While negotiation sticking points between the two sides remain — on fishing quotas, state aid, and more — one further area to be determined is the shape of the UK's tariff regime for imports from the EU.

UK Global Tariff

In May the UK's trade secretary Liz Truss set out a new tariff regime — the UK Global Tariff. It will replace the EU's Common External Tariff, which applies until 31 December 2020.

The UK Global Tariff will apply to all goods imported into the UK unless there is an exception such as a relief or tariff suspension, or the exporting country has a trade deal with the UK. It expands tariff-free trade by eliminating tariffs on a wide range of products, ensuring that 60% of trade will come into the UK tariff free on WTO terms or through existing preferential access from January 2021.

If the UK fails to conclude a deal with the EU before the end of the Brexit transition period on 31 December, the new UK Global Tariff will apply to UK companies importing from Europe.

The UK government has created a tool to check the tariffs on goods imported from 1 January 2021.

Matthew Clark, head of PwC's UK Customs, Excise & International Trade team, said that the new tariff system is a simplification of the existing arrangements.

"Generally, under the UK [Global] Tariff, importers will pay slightly lower customs duty rates than … they are used to paying under the Common External Tariff currently used by the EU." He explained that the UK government has taken steps to make tariffs easier to use — by the rounding down of rates to even numbers, removing many smaller rates referred to as "nuisance rates" below 2%, and the scrapping of the complex Meursing table that determined the customs duty for many foodstuffs.

Preparation for 1 January

Clark warned that businesses need to prepare now for the introduction of the UK Global Tariff by first understanding their supply chains. "To understand how Brexit impacts your business you have got to have that visibility first before you do anything else," he said.

In preparation for 1 January, Clark said businesses need to ask these questions:

What goods are bought and from where?
Who is acting as the exporter from the EU or UK?
Who is willing to act as the importer of goods into the UK or the EU?
Importing UK companies also need to look at the arrangements for sales — the contracts and Incoterms used, which are set by the International Chamber of Commerce and determine whether the buyer or seller completes the export and import customs formalities.

He advised businesses to approach contracts by "analysing the roles that you play within that supply chain and then putting a Brexit lens over the top of that and saying, 'Is this contract still fit for purpose?'"

The new price of goods imported from the EU may require renegotiation of contracts. Businesses need to ask themselves "how the price is going to change in the future, post-Brexit, because you could have additional customs duty on it", Clark said.

Having achieved supply chain visibility, companies then need to work out the customs declaration dataset required for import documentation. This would include the goods':

Value;
Origin, such as where manufactured, grown, mined, or, in the case of fish, caught; and
A ten-digit tariff classification code that determines the applicable customs duty rate.
"[The classification code] not only determines the rate, but also determines if there are any specific trade measures that have to be complied with to import the goods," Clark said. These could include a health or veterinary certificate, or that the goods require additional duty such as an anti-dumping duty to protect UK local markets from damage caused by imports priced substantially below UK market value.

"For companies that have only ever traded between the UK and the EU … it is such a new process … and they really don't understand the effort and time it takes to pull that data together and then transmit it to HMRC," Clark warned.

Training grants

"It is recognised that this is all a barrier for certainly small and medium-size businesses to enter the international export market," Turnbull-Hall said. As a result, the UK government has provided grants for companies to train their employees in this area, she explained.

"Typically, an importing company, unless they have the size and the volume that wouldn't warrant it, would use a clearance agent to actually submit their export and import declarations to HMRC — they normally wouldn't do it themselves," Clark explained.

However, with HMRC predicting that the volume of customs declarations could increase fivefold from 2021 and with the limited number of customs agents in the UK that provide these services, businesses need to ensure that an agent they engage has the capacity to clear the quantity of goods likely to be imported.

Despite HMRC providing information on this topic, many businesses still haven't finalised their Brexit preparation, which is a concern, Clark said.

Phased implementation

Clark explained that under the UK Global Tariff regime, full customs declarations for many goods imported from the EU to the UK would not be required in the first six months of next year. However, in July HMRC would expect businesses to send a collated data report and all customs duties owed for imports during that period. Therefore, keeping records for this initial six-month period will be essential.

Pre-notification and relevant health checks on some goods — for example, products of animal origin and regulated plants and plant products — will start on 1 April.

A contentious issue to be resolved is the movement of goods from the UK mainland to Northern Ireland. The UK government has indicated there will be an electronic declaration required to move goods from Great Britain into Northern Ireland. "We anticipate that the dataset will likely need to include customs data, safety and security data, and vehicle data. In addition, EU duty may need to be paid or accounted for for goods the EU deems as being 'at risk' of entering the Republic of Ireland market," Clark said.

However, there has not been official confirmation of the exact dataset required and the system used to transmit it to HMRC, he said.