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Withdrawal Agreement & Political Declaration

On 17 October 2019, the UK government and European Commission agreed the text of a new UK Withdrawal Agreement (WA) and Political Declaration (PD). This ‘deal’ combines a transition period that would run from the date of the UK’s departure from the EU until December 2020. At this point, one of three scenarios would kick in:

  • the UK and EU could enter a treaty-based ‘Future Relationship’;
  • the transition period could be extended by 1-2 years if agreed by July 2020 (permitting longer negotiations); or
  • UK-EU trade could move to WTO Terms without a trade agreement in place.

The BCC has analysed the level of clarity for business that the proposed Brexit agreements provide on the key areas covered by our Business Brexit Checklist. If you have any questions, would like further clarification or would like to provide feedback, please get in touch.

*Please note that where materials refer to precise timelines for policy these may be subject to revision as events unfold.

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People

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Transition Period

During the transition period, employers would face ‘business as usual’ arrangements with respect to European Union (EU) citizens currently living in the UK. EU citizens will be able to enter the UK at any point up until the end of the transition period, 31 December 2020. If they wish to remain beyond the end of the transition period, they will need to apply for settled status.

Those who have been resident in the UK for 5 years will have the right to settle permanently in the UK (‘settled status’) and their family members will also be protected. Those in the UK for less than 5 years will be able to apply for pre-settled status until they have accrued 5 years residency to qualify for the right to settle permanently.

EU citizens with either settled status or pre-settled status will continue to be entitled to work, study, and access public services and benefits on the same basis as they do now. The deadline to register for settled status or pre- settled status under the EU Settlement Scheme is 30 June 2021. As an employer, you can use the Home Office EU Settlement Scheme Employer Toolkit to support your employees to apply for settled/pre-settled status.

Professional qualifications held by EU citizens living or working in the UK before the end of the transition period will continue to be recognised. During the transition period, individuals with professional qualifications may continue to apply for recognition of those qualifications. Any qualifications recognised, or in the process of recognition, by the end of the implementation period will continue to be recognised.

Any Swiss or UK national with a qualification - or in the process of obtaining a qualification - at the end of the transition period will have up to 4 years from the end of the transition period to apply for recognition of their qualifications. All persons with recognised qualifications will be entitled to practice the profession under the same conditions as UK nationals.

Post Transition

Freedom of movement between the UK and EU will end. The government intends to bring in a new UK points-based/skills-based immigration system, replacing the current, reciprocal automatic rights to work and settle.

The status of professional qualifications is unclear: decisions on recognition of qualifications sought after the end of the transition period will be subject to the outcome of future relationship negotiations.

Trade

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Transition Period

During the transition period no tariffs will apply to UK goods placed on the EU market and vice versa. UK-based firms will retain access to the Single Market as under current arrangements, including for aviation, road haulage and other cross-border economic activities.

As far as we know, no tariffs will also apply to goods placed on the market before the end of transition period where the movement of goods has started but has not been completed before the end of transition period. Such goods will move freely until they reach the end-user.

In principle, the EU’s current free trade agreements (FTAs) will continue to apply. The EU will inform partners of the transition period – it is uncertain as to whether the agreement of these third countries is required. The UK would adhere to EU FTAs, working on the basis of reciprocal adherence.

The UK will be able to continue negotiating, signing and ratifying its own agreements provided they do not enter into force before the end of the transition period. This might mean signing further “continuity” deals with the current EU FTA partners or negotiating new treaties.

Post Transition

After the transition period, the UK would no longer be a member of the EU’s Customs Union and the Single Market. This means that in the absence of a trade agreement that sets tariffs at zero, tariffs will apply to goods traded between the UK and the EU.

The default tariffs will be tariffs applied by both sides to third countries. For the EU this would be the current Common External Tariff – a tariff applied to imports from countries like China or the US with which the EU does not have a trade deal in place. This tariff would also, by default, apply to imports from the UK. The UK would, by default, also apply its third-party tariffs. It is currently uncertain whether these would be the recently published ‘No-Deal’ tariffs or the UK Government will review the No-Deal tariffs during the transition period.

Separate provisions would apply to Northern Ireland. After the Transition Period, Northern Ireland (NI) would stay in the UK’s customs territory but would at the same time continue to apply the EU's customs rules, tariffs, quotas and, partially, EU Single Market rules. This means that NI would continue to apply the EU’s tariffs as external tariffs. The Union Customs Code (UCC) rules will continue to apply in NI. As a result, there would be no tariffs, charges or restrictions on trade between NI and the Republic of Ireland (ROI). However, the proposal creates a de facto customs and regulatory border in the Irish Sea between NI and Great Britain (GB). It is understood that NI businesses would have tariff-free access to both the EU and GB markets.

As a result, GB goods entering NI would technically be subject to the EU’s customs tariffs. According to the agreement, goods considered low-risk of being diverted into the EU through NI would be exempt from tariffs. Goods belonging to UK residents moving across the border would also be exempt (movement of personal property goods). Only goods considered to be high-risk of entering the EU would be subject to them. The Joint Committee would establish which goods would be considered high-risk during the transition period. The tariffs for GB goods entering NI would then be eligible for a rebate if the importer could demonstrate that the goods remained in NI.

Goods entering NI from a third country would be subject to EU or UK tariffs depending on which market they would end up and the level of risk for the EU Single Market. The Joint Committee would need to decide on how to determine the destination of the product. According to the current understanding, the high-risk goods entering from a third country would be initially subject to EU tariffs and rules. If the UK tariff is lower, the NI importers could apply for a rebate for the difference in duties, provided they are able to prove the goods remained on the NI market.

The details of the rebate system are still to be negotiated within the Joint Committee. The system would require businesses to apply for rebates, adding to the administrative burden. Another issue is how, at which point and who can demonstrate that the goods remained on the NI market. This will be especially cumbersome in case of longer supply chains or goods stored in a warehouse. A system would need to be put in place for traders to provide the necessary documentary evidence of goods remaining in the NI market. Fraud prevention would also be an issue.

Article 5, point 6 of the deal mentions that the UK would have the right to waive or reimburse duties on goods brought into Northern Ireland provided that the values do not exceed State Aid thresholds for individual companies. It is uncertain what the aim of this provision is. According to the current understanding, the provision could lead to de facto exemption for smaller traders irrespective of the type of goods and in which market the goods would end up. It could also allow the UK Government to reimburse or wave costs related to exports and imports between GB and NI.

The revised Political Declaration states that towards the end of the transition period, the UK would expect to sign a comprehensive free trade agreement (FTA) with the EU. It refers to an “ambitious, broad, deep and flexible partnership across trade and economic cooperation with a comprehensive and balanced Free Trade Agreement at its core”. If an FTA is negotiated between the UK and the EU tariffs would be eliminated on the majority if not all goods. However, in order to benefit from preferential, tariff-free access businesses on both sides would need to demonstrate that they meet rules of origin. It is uncertain how such proposed FTA would work together with the arrangements for Northern Ireland.

Under the new proposal, the UK would be able to sign its own free trade agreements with third countries. It is uncertain whether the current continuity agreements (the rolled-over agreements) will be amended during the transition period. Some of them require renegotiation of all or at least some provisions (e.g. the UK-South Korea agreement) after a certain period of time.

NI would be able to profit from UK’s trade agreements. Goods produced in NI will have the same preferential access to FTA partner markets as goods from GB. However, when goods from the UK’s FTA partner are imported into NI, it is understood that the above rules for third-country goods brought into NI will apply.

It is uncertain whether NI would be included in EU’s trade agreements and whether as a result EU, businesses would be able to cumulate origin with NI inputs. However, it seems difficult to prevent goods from NI being incorporated into EU products exported under preferential rates into these markets. Therefore, in practice, it would be difficult to prevent NI from benefiting from EU's trade deals.

Borders

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Transition Period

During the transition period it would be business as usual for customs arrangements, declarations and procedures. There would be no change in the way customs operates and no new border requirements. There would be no customs or regulatory border between the UK and the EU. As the UK would still de facto be in the Single Market, no paperwork or checks would be required for trade with the EU27 countries.

Post Transition

After the transition period, the UK would no longer be a member of the EU’s customs union and the Single Market. This means there will be a customs border between the UK and the EU. UK businesses would no longer be able to circulate goods freely throughout the EU and vice versa. The UK and the EU would be required to apply the same customs rules to goods moving between the UK and the EU, as they would to goods coming from, for example, China or the USA. The only exception to that would be if the UK and the EU signed a free trade agreement (FTA).

By default, full customs formalities, forms and checks would be required for goods traded between the UK and the EU. Companies importing from the EU would need to provide a range of customs information including a commodity code of the product they are importing, its customs value and country of origin. Similar information would be required when making an export declaration. Same procedures will be required in the EU for goods imported from the UK.

Pre-arrival notifications known as entry/exit summary declarations or safety and security declarations would also normally be required before the goods arrive in the UK or the EU. These are normally submitted by the carrier, not the trader. Exit/entry declarations are different to customs declarations.

They are submitted before goods are imported/exported as a pre-arrival/ pre-departure notification. This allows authorities to control what's moving across borders from a safety and security perspective. This information is mainly used for risk analysis and not to calculate the amount of duties due or apply other trade policy measures as in the case of customs declarations. For imports, this means submitting the notification up to two hours before the arrival of the goods (the deadline changes depending on the mode of transport used). On export, it is usually done at the same time when submitting a customs export declaration. The procedure here is less strict as the goods are leaving the territory.

As part of the transitional procedures in the event of a no-deal scenario, the UK Government announced a gradual phase-in of the entry/exit declarations. The requirement has been temporarily waved for six months for goods imported from the EU. It is uncertain whether similar simplifications would be available after the end of the transition period.

Customs declarations would also be required. They would be identical to the customs declarations currently used for exports and imports to all non-EU countries. It is uncertain whether the UK Government would introduce any simplifications on the UK side of the border. Back in February 2019, the UK Government set out a programme of simplifications for customs formalities for goods imported into the UK from the EU under the no-deal scenario. UK-established companies trading via roll-on-roll-off locations were eligible to register for Temporary Simplified Procedures (TSPs). These simplifications would have allowed registered companies to provide only a small amount of data at the point of import into the UK and defer the payment of customs duties and submission of full import declarations.

Border checks and inspections would normally take place for some shipments on both sides of the border. For certain types of goods, additional requirements would apply. Products of animal origin, plants and plant products as well as some other food of non-animal origin would be subject to safety and phyto-sanitary (SPS) checks. Licences, requirements, permits and other checks will apply to other products, such as chemicals, medicine and controlled goods.

There would also be changes in regard to the movement of excise goods, with the Excise Movement Control System (ECMS) no longer being used to control suspended movements between the UK and the EU. However, it will continue to be used for moving excise goods within the EU. The UK will implement its own version of EMCS. Future UK excise duties or measures have not yet been announced.

The type of customs formalities and inspections on the EU/UK border will to a certain extent depend on what type of arrangement the UK will have with the EU following the transition period. The revised Political Declaration states that towards the end of the transition period, the UK would expect to sign a comprehensive free trade agreement (FTA) with the EU. It refers to an ‘ambitious, broad, deep and flexible partnership across trade and economic cooperation with a comprehensive and balanced Free Trade Agreement at its core’.

If an FTA is negotiated between the UK and the EU, rules of origin would normally come into force. These are conditions that goods need to fulfil in order to be able to profit from preferential tariffs under a trade deal. Origin certification would be required adding to the amount of paperwork and formalities on the border.

Separate provisions would apply to Northern Ireland. After the transition period, Northern Ireland would stay in the UK’s customs territory but would at the same time continue to apply the EU's customs rules, tariffs, quotas and, partially, the EU Single Market rules. This means that NI would continue to apply the EU’s tariffs as external tariffs and the Union Customs Code (UCC) rules. As a result, there would be no tariffs, charges or restrictions on trade between NI and ROI. However, the proposal creates a de facto customs and regulatory border in the Irish Sea between NI and GB. It is understood that NI businesses would have tariff-free access to both the EU and GB markets.

It is uncertain what customs formalities and checks would be required for goods moving between NI and GB and the other way around. Article 6 of the proposed deal clarifies that nothing should prevent unfettered market access for goods moving from Northern Ireland to the rest of the UK. However, as NI will in effect be the EU’s external border and there might be tariffs in place on some goods as well as regulatory differences, it seems clear that at least some customs formalities would be required. In addition, the UCC would continue to apply in NI and therefore standard provisions for import and export formalities should apply. This will be negotiated by the Joint Committee during the transition period. However, it is likely that both GB and NI exporters/importers would be required to submit additional paperwork.

Digital

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Transition Period

During the transition period businesses would face ‘business-as-usual’ arrangements for the handling and protection of data.


Post Transition

The Political Declaration (PD) highlights the importance of data and digital trade between the UK and EU. However, for both areas, the PD does not provide any detail beyond broad ambitions for cooperation.

On data protection, PD states that the European Commission will endeavor to adopt a decision on whether the UK meets data adequacy status – in order to facilitate information flows between the UK and EU – by the end of 2020. The PD states that the UK will establish its own international data transfer regime but will take steps to ensure the comparable facilitation of transfers of personal data to the EU.

On the digitalisation of trade, the PD states that the UK and EU should establish provisions to facilitate electronic commerce and remove barriers; provide for fair and equal access to public telecommunication networks; and work together to exchange best practice on emerging technologies.

Regulations and Standards

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Transition Period

During the transition period, employers would face ‘business-as-usual’ arrangements with respect to UK and EU regulations. All existing structures will continue to apply, including jurisdiction of the European Court of Justice.


Post Transition

The Political Declaration (PD) states that the UK and EU envisage ‘an ambitious trading relationship on goods on the basis of a Free Trade Agreement’ and would seek to establish deep regulatory and customs cooperation. The PD states that the UK and EU, while preserving regulatory autonomy, should promote regulatory approaches to remove unnecessary barriers to trade- including going beyond WTO agreements on technical barriers to trade and phytosanitary measures.

The PD states that the UK and EU would explore possible cooperation between UK authorities and EU agencies such as the European Medicines Agency, European Chemicals Agency, and European Aviation Safety Agency. They would agree regulatory provisions for services trade and establish a framework for voluntary regulatory cooperation.

On intellectual property, the PD states that the UK and EU should go beyond the standards of WTO TRIPs, and preserve high levels of protection. Protections for geographical indications will be negotiated.

Tax (VAT)

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Transition Period

During the transition period it would be business as usual for VAT. All VAT related provisions will stay as they currently are. No VAT registered business will be required to pay VAT upfront when moving goods between Great Britain and Northern Ireland, and that accounting for VAT can continue to be done through postponed accounting and UK VAT returns. VAT simplification measures, including the mini one-stop-shop, is expected to remain available to UK firms.


Post Transition

After the transition period, the UK would no longer be a member of the EU’s Customs Union and the Single Market. This means there will be a customs border between the UK and the EU. UK businesses will no longer be able to circulate goods freely throughout the EU and vice versa. The UK will no longer be in the EU’s VAT zone. As a result of a customs border in place between the EU and the UK, import VAT will also become applicable.

Currently, there is no detail on the future VAT regime for the UK post-transition. Earlier in 2019, the UK Government announced postponed accounting for import VAT as part of transitional measures in a no-deal scenario. Import VAT liabilities were to be settled via the business’s regular VAT return. It is uncertain whether this or any other simplifications would apply after the transition period.

Under the new proposal, separate provisions would apply to Northern Ireland (NI). After the transition period, NI would stay in the UK’s customs territory but would at the same time continue to apply the EU's customs rules, tariffs, quotas and, partially, EU Single Market rules. NI would be part of the UK’s VAT area but will also be subject to EU’s VAT Directive and Court of Justice of the European Union rulings for trade in goods. Goods traded between NI and the Republic of Ireland (ROI) would still be considered intra-community supplies as they do now (the same rules would apply). However, goods going from GB to NI and then to ROI would be subject to EU’s import VAT. This VAT will not be remitted to the EU. The UK may also decide to align VAT rates applicable in NI to those in Ireland.

For services, however, NI will stay aligned with the UK VAT rules. This would potentially create issues around distinguishing between goods and services when it comes to VAT (in cases where there is a joint sale e.g. aftersales services or warranty). The Joint Committee will oversee the application of VAT provisions.

Finance and Banking

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Transition Period

During the transition period, financial services firms in the UK will largely be able to operate as usual. However, the EU and UK will be carrying out equivalence assessments, endeavouring to conclude these assessments before the end of June 2020. Overall, there have been no material changes to arrangements for financial services compared to the previously agreed Withdrawal Agreement (WA) and Political Declaration (PD).

Post Transition

Post-transition, EU market access for UK firms in the financial services sector will be more limited than under current arrangements as per the UK’s new status as a third country. Market access will be based on ‘equivalence’, which means recognising each other’s regulations and can be withdrawn with 30 days’ notice. Currently, equivalence does not some cover basic business banking products and services such as bank lending. It remains unclear whether this will impact UK firms’ access to finance or other financial products and services. The PD does keep open the prospect of improved arrangements but offers little detail on this. Taken together, there has been no material changes to arrangements for financial services compared to the previously agreed WA and PD.

Funding

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Transition Period

EU Structural and Investment Funding (ESIF) arrangements in the UK would apply until the end of the transition period, which also coincides with the end of the current Multi-Annual Financial Framework (end December 2020).

Post Transition

The UK Government’s plan for the domestic replacement for ESIF from 2021 is the ‘UK Shared Prosperity Fund’. There is no official statement that lays out the operational details of the fund. A report by the House of Commons Library, published in May 2019, stated that the government still needed to decide the most basic features of the ESIF replacement, from scale, priorities and objectives, to how it would be dispersed geographically.