The Seafood Sector & Brexit – Q&A

The issues experienced by the seafood sector as a result of Brexit has been in the news a lot since 1 January.  Why has the seafood sector been so heavily impacted?

There are a number of issues that have impacted the movement of goods after 1 January 2021, not all of which are unique to the Seafood Sector.  For a start, it is estimated that Brexit will create more than 200 million extra export declarations per year.  As the final agreement between the EU and the UK was only agreed one week before the end of the transitional period, businesses and customs brokers were not in a position to fully prepare.  There is a shortage of customs broker capacity, with the UK Government estimating up to 50,000 additional customs broker staff being required.  Even if the shortages are half of that estimate, it still means that there are severe pressures on the process.

More specifically for the seafood sector is the increased paperwork required for the movement of goods.  In addition to the actual export declaration, seafood shipments have a raft of other documentation from catch certificates to various health certificates.  For each individual shipment, there are multiple documents and an error in one will result in the shipment being delayed.

In addition, some of the EU VAT simplifications, such as call off stock, are no longer available to GB businesses.  As there was a strong commercial rationale for the structures that required these simplifications, changing the logistical arrangements were not an option.  Rather, this has created additional registration requirements in other EU jurisdictions.

This has been referred to as “teething troubles” and the finger has been pointed at exporters for not getting the paperwork right.  Is this fair?

No this is not fair.  There will be a degree of teething problems as businesses come to terms with the new processes, which could have been lessened by a transitional period.  However, the issues are more systemic arising from the Brexit deal.  The big issue for many seafood businesses, particularly the smaller businesses, is the fact that the weakest link on a lorry heading to the continent affects all other suppliers on that lorry.  Many seafood businesses engage with haulier’s and other logistics firms that offer a “Groupage” arrangement.  This involves the consolidation of deliveries from a number of suppliers on a single lorry.  In most cases, each of those suppliers will have deliveries for several customers across the EU.  So, for each lorry, you have a number of shipments, each with their own basket of documents.  What this means is that, for each “groupage” load, the potential for an error increases exponentially and, as mentioned, the entire lorry only moves as fast as the slowest shipment.

So the vast majority of seafood businesses suffered delays in the first couple of weeks through no fault of their own.  The position was made worse when some logistic companies suspended their “groupage” services, leaving businesses with no way to move their product.

Did the agreement of the EU-UK Trade and Cooperation Agreement on Christmas Eve not take away all of these issues?

Unfortunately not. The agreement move have removed some customs duty costs; however, it did not change the requirement to make customs documentation.  As mentioned, this is around 200 million extra customs declarations needed regardless of the agreement.

In addition, the agreement simply means that there will be no tariffs on goods of UK origin going into the EU or on EU originating goods being imported into the UK.  Importantly, one of the key points is that, just because you have sourced goods from an EU customer, it doesn’t mean that there will be no customs duty.  Customs origin rules can be quite complex and, while it is clear that a toy manufactured in China will not be of EU origin even if sold by an EU supplier, it is less clear where overseas raw materials are used in a manufacturing process in the UK in making goods for export to the EU.  Here it will depend upon whether sufficient processing has taken place to change the origin of the finished product to the UK or whether the original origin still applies.

What has AAB being doing to assist clients with the Brexit changes?

Both in the run up to Brexit and in the first few weeks of 2021, we have spoken with clients to ensure that they understand the changes and have put in place any overseas registrations necessary for the smooth operation of their supply chain.

One of the key factors was the changes to the EORI number.  Up until 31 December 2020, the GB EORI number was valid in each of the 28 member states and there was no need for UK businesses to have an EORI number in any of the other member states.  However, on 1 January 2021, the scope of the GB EORI number shrank to only covering Great Britain and was only valid for customs declarations submitted to HMRC for the movement of goods into or out of Great Britain.  If a UK business needed to submit import or export documentation to an EU customs authority after that date, a separate EU EORI number from one of the other 27 member states was needed.  In addition, under the Northern Ireland protocol, a separate Northern Irish EORI number with an XI prefix was needed for any declarations for movements into or out of Northern Ireland.

We supported clients in ensuring that they had the correct EORI numbers in place.

What about the specific delays experienced by the Seafood Sector, has AAB any solutions to these delays?

We have supported clients with the operation of more efficient structures that resolve some of the issues mentioned earlier.    In particular, clients have implemented arrangements that significantly reduce the volume of paperwork.  The less paperwork per lorry, the less the risk of error and delay.  Depending upon the client, this has included the formation of a new entity, the registration of a branch or simply obtaining a VAT and EORI number from the tax authorities.  In addition, we have supported clients with the correct invoice layout and invoice statements as well as ensuring the correct VAT treatment is applied.   We have been supported in this by our partnerships with local firms through our international networks.

Whilst Brexit will always bring additional challenges and administrative costs, our support has helped make the changes involved in importing seafood into the continent less painful.

Is it not the Customers’ problem to get the goods into the EU?

Who is responsible for importing the goods will depend upon the Incoterms agreed between the supplier and the customer.  In most cases, particularly on “Groupage” loads,  UK businesses are being encouraged to use DDP delivery terms.  This means Delivered Duty Paid and puts the onus on the supplier to import the goods.  There may be many commercial reasons why DDP incoterms are used; however, it is important that businesses that only ever shipped goods to EU countries understand the impact different incoterms can have on their customs and VAT reporting obligations in other EU countries.

What other VAT changes has Brexit brought?

A real benefit from 1 January 2021 is the change to the procedures for UK Import VAT.  Gone is the cash flow cost resulting from having to wait up to 3 months to recover import VAT paid when goods are imported into the UK.  Now, businesses have the option of selecting postponed import VAT accounting as the payment method.  Under this process, rather than fund the VAT cost up front; the VAT accounting is done as an adjustment on the VAT return.  Similar to the previous treatment of acquisitions from other member states, import VAT, both on movements from the EU and other non-EU countries can now be accounted for on the VAT return.  We have helped clients register for the relevant import statements as well as in setting up new VAT codes in their accounting software.

What would be your overriding message on Brexit?

As with any significant change, if they have any concerns about the correct treatment, I would advise businesses to seek professional advice.  At AAB, our indirect tax team has extensive experience of cross border trade and we can help business navigate their way through the stormy seas created by additional Brexit red tape.

For further information, or if you have any questions, please contact Alistair Duncan or your usual AAB contact.