Johnson promised tariff-free trade – so why is Brexit reality so different?

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Retailers may still have to pay duty on some goods, while paperwork is putting some firms off

An M&S food store in Paris. UK firms find goods not largely made in Britain could attract tariffs.
An M&S food store in Paris. UK firms are finding that goods not largely made in Britain could attract tariffs. Photograph: Chesnot/Getty Images
An M&S food store in Paris. UK firms are finding that goods not largely made in Britain could attract tariffs. Photograph: Chesnot/Getty Images

First published on Fri 8 Jan 2021 10.13 EST

Less than two weeks after Boris Johnson celebrated what he described as his “jumbo” Brexit deal that would guarantee tariff-free trade with the EU, British businesses have found the small print tells a different story.

Some EU retailers say they will not sell into Britain because they would have to register in the UK for VAT, while other high street names including Marks & Spencer are finding that those goods not largely made in Britain could indeed be subject to tariffs.

Why is this happening?

John Lewis says its decision to stop selling into the EU is not related to Brexit but a strategic decision to concentrate its business on the UK. Other businesses, however, have told customers they have suspended exports to the EU or into the UK while they get to grips with the new trading arrangements.

One of the big issues is whether goods sold by retailers into Europe are subject to tariffs.

Under the Brexit deal a product will attract tariffs if more than 40% of its pre-finished value is neither of British nor EU origin, from Japan, for example. Big retailers will take time to calculate their exposure to tariffs and some have suspended all sales to the EU while they work out their new cost base.

The cost of new paperwork, including customs declarations required on goods being traded in both directions, is another consideration, as is the £150-a-time health certificate require on all consignments of food.

What about companies selling into the UK?

Because the UK is no longer in the EU-wide VAT system, the government is requiring EU businesses to register for a UK VAT number, charge VAT at the point of sale and hand over the tax to HMRC.

The bike parts supplier Dutch Bike Bits said on its website it had been forced by a “ludicrous” policy to stop dealing with UK customers, despite that fact that it had “many customers within the UK and would like to be able to trade [with them]”.

“The British government has decided to require every company which exports to the UK to apply and collect British taxes on behalf of the British government,” it said.

Other companies deciding to stop shipping to individual consumers in the UK include Beer On Web, a Belgian beer specialist; BestSecret, a German designer merchandise site; the Belgian chocolate manufacturer Neuhaus and the Dutch homewares store Hema which has simply closed its UK-facing webshop.

Some have said they hope the move will be temporary. The Finland-based outdoor clothing retailer Scandinavian Outdoor said it had halted UK sales but hoped to take orders again once “our UK VAT registration and the overall process of selling to the UK post-Brexit has been sorted out”.

Before Brexit, companies could reconcile VAT payments and charges through an electronic system that worked out which country would benefit from what tax.

As of 1 January, the EU no longer validates UK VAT numbers so British VAT must be collected at the point of sale rather than at the point of importation. It means EU companies abroad must register for UK VAT and account for it if the product is valued at less than £135.

Which retailers are affected?

The British Retail Consortium says that at least 50 of its members face potential tariffs for re-exporting goods to the EU.

Marks & Spencer has said about one-third of its food lines are subject to complex rules of origin regulations including Percy Pigs sweets, which could attract tariffs if re-exported to places like Ireland and France.

Debenhams has closed its online business in Ireland for similar reasons.

North Face, the outdoor clothing company, has also put a notice on its website that “due to customs clearance issues caused by Brexit, the shipment of orders to Northern Ireland are suspended from December 28 until further notice”.

What is happening at ports?

Dover and Folkestone, the gateway to Europe, are relatively quiet, partly because of pre-Christmas Brexit stockpiling by importers but also because large retailers have temporarily suspended exports.

Holyhead, the UK’s second-largest ferry port, has also experienced a decline in trade as British businesses struggle to get to grips with Brexit rules. On Thursday night Ireland’s revenue commissioners announced they were easing the rules for traders to try and get traffic flowing again. There have also been complaints that trucks are being stuck in Dublin port while checks are being conducted.

When will things improve?

It will takes weeks and months for British businesses to assess the impact of the new rules. The government was so concerned about lack of Brexit readiness it decided to phase in the new controls on the British side over six months, an indication of how long it expects disruption to last.