What is happening
The UK left the European Union on December 31, 2020. As part of the Brexit Withdrawal Agreement, the UK remained inside the EU VAT regime and Customs Union until year's end.
As of January 1, 2021, the UK Global Tariff system goes into effect for all United Kingdom jurisdictions, including England, Wales, Scotland, the Isle of Man, and Northern Ireland. New Brexit legislation will impact duties and VAT charges for international sellers. Likewise, Northern Ireland enters into a special VAT and customs relationship with the EU.
1. HS Codes and the UK Global Tariff system
The UK Global Tariff system goes into effect for all United Kingdom jurisdictions, including England, Wales, Scotland, the Isle of Man, and Northern Ireland. The new UK Global Tariff contains many tariff rate changes for existing HS codes. Customers should expect duty calculations to differ for GB countries compared to previous tariff rates.
Because the UK Global Tariff is based on the European Union TARIC Tariff, HS codes that were in place for Great Britain before Brexit will continue to be valid post-Brexit.
Avalara Item Master customers can migrate their EU HS codes to the new UK Global Tariff. Codes won't be migrated automatically. Contact customer support to request a migration.
2. Duties and VAT for UK imports
Imports to UK countries from outside of the UK will be treated as cross-border transactions as of January 1, 2021. Imports will trigger duty charges if they exceed Great Britain's de minimis threshold of 135 GBP.
VAT charges for imports into GB countries will be governed by new Brexit legislation. Importers are expected to register with UK VAT authorities and charge and remit VAT on all sales to Great Britain. Shipments bound for Northern Ireland from European nations are one exception to VAT treatment. View VAT and Brexit FAQ
3. Update AvaTax settings for the new Northern Ireland country code
Northern Ireland will enter into a special VAT and customs relationship with the EU and operate under EU VAT regulations with regards to goods, but not services or digital services. For more information, see UK clarifies Brexit Northern Ireland ‘XI’ VAT number.
A new country code (XI) must be used for Northern Ireland. In AvaTax, Northern Ireland must be added under Settings > Where You Collect.
For those who cannot change the country code for Northern Ireland to XI, Avalara can assist with creating an Advance Rule that can react to a combination of GB as country code and BT* prefix to Postal Code to identify Northern Ireland transactions. Contact customer support for help with this rule.
Future impacts to duty calculation in AvaTax
Negotiations of new trade agreements are ongoing. Avalara is actively tracking the potential impact of new rules on customs duties calculations in AvaTax.
Of particular interest is a new agreement with the European Union which is said to extend the “free trade” privilege UK nations have with the European Union pre-Brexit. The exact details of the agreement are still being understood. Generally, preferential trade agreements are driven by where goods are manufactured rather than where they are shipping from. Avalara is currently investigating how the new agreements between the UK and EU are going to function. Should this be the case, participating in preferential duty rates will require customers to understand the Country of Manufacture (aka Country of Origin) for the products they are selling and to share this information with Avalara as part of transactions. For more information, see Avalara's blog for a Brexit breakdown of preferential tariffs and rules of origin.
Avalara is monitoring new legislation and will incorporate new rules and regulations into the AvaTax platform as needed. In the meantime, the system will not differentiate between imports to GB from EU versus the Rest of World and as a result, the new UK Global Tariff will apply to all importers for the foreseeable future.