The UK’s Post-Brexit E-Commerce Market: A Checklist

The Covid‑19 outbreak has forced many struggling businesses to embrace e‑commerce as their key sales channel in their domestic markets and many overseas territories. The UK, the world’s third-largest e-commerce market, has long been a prime target for Hong Kong exporters. It has also until now served as a gateway to the EU’s single market.

However, the UK ceased to be part of the EU’s Single Market and Customs Union on 1 January 2021, following the end of the post-Brexit transition period. To replace the arrangements governing trade between the UK and the EU, the Trade and Co-operation Agreement (TCA) was signed on 30 December 2020. With the UK no longer subject to EU policies, laws, and international agreements, a new set of rules and regulations will now be applied in the UK market, affecting traders who are used to seeing the country as a springboard to the wider European market.

The checklist below is an attempt to provide a better understanding of the adjustments needed post-Brexit. Although it is by no means exhaustive, it aims to provide relevant updates for Hong Kong exporters and traders.

After the Transition Period

On 1 January 2021, the UK ceased to be part of the EU Single Market (comprising the free movement of persons, goods, services and the freedom of capital within the EU’s member states) and the EU Customs Union. The TCA which was agreed by the UK and EU on 24 December 2020 does not alter that fact. Instead, it sets separate terms for the future relationship between the EU and the UK.

Under the provisional application of the TCA, there will be checks at the EU-UK border, and e-commerce businesses will be affected. It means there will be stricter customs checks for packages leaving the UK and entering the EU. Longer shipping times should also be expected.

Subject to any exceptions, the TCA eliminates customs duties between both parties (i.e. the EU and the UK) on all goods having the preferential origin of either party. However, it does not provide for the elimination of import VAT.

Imports of goods from outside the UK in commercial consignments of £135 or less are free from customs duty and not subject to import VAT, except for alcohol, tobacco products, and perfume and toilet water. EU customs duty is not due on goods provided directly to the buyer when their value does not exceed €150, except for perfume and toilet water, tobacco or tobacco products and alcoholic products.

As regards VAT, the EU will create an import scheme, effective from 1 July 2021, which will cover distance sales of goods imported from third countries or territories to customers in the EU up to a value of €150. Under this, the seller will charge and collect the VAT at the point of sale to EU customers and declare and pay that VAT globally to the Member State of identification in the One-Stop-Shop (OSS) [1]. These goods will then be exempt from VAT upon importation, allowing a fast release at customs. The introduction of this import scheme will go hand in hand with the abolition of the current VAT exemption for goods in small consignments of a value (not inclusive of customs duties or transport costs) of up to €22 (varying across Member States). The most up-to-date standard and other VAT rates of each EU member state and for the UK can be found here.

Also noteworthy is the chapter on technical barriers to trade (TBT) which addresses regulatory barriers to trade between the UK and the EU. Hong Kong sellers should know that each party will now have the freedom to regulate goods in the way most appropriate for their own market. This means that the existing and any future EU rules in the products field – including those covering toys, textiles, footwear, electronics, cosmetics, chemicals, medical devices and PPE – may no longer apply to the UK, and vice versa.

The signing of the TCA was completed on 30 December 2020 and its application began on a provisional basis on 1 January 2021. Both parties will move towards the signing and ratification of the Agreement in line with their respective rules and procedures. The implementation and administration of the TCA is to be supervised by the Partnership Council, comprising representatives of both the EU and the UK.

Although the EU usually obtains the European Parliament’s approval of an international agreement before that agreement can be provisionally applied, the exceptional circumstances in the case of the TCA (i.e. its approval so close to the end of the transition period) led to the EU deviating from that principle. It must still obtain the parliament’s approval, however, and in addition, the deal still has to be approved by all 27 EU Member States. The provisional application of the TCA is due to end on the date the TCA officially comes into force or on 28 February 2021. However, the Partnership Council may also decide that the provisional agreement should stay in place until a later date.

The New Reality

The UK government has put in place the UK Global Tariff (UKGT) [2], which applies to all goods imported into the UK unless the destination one is importing from has a trade agreement with the UK, or an exception such as a relief or tariff suspension applies, or the goods come from developing countries covered by the Generalised Scheme of Preferences (GSP). This replaces the EU’s Common External Tariff (CET). Companies dealing with e-commerce between the EU and the UK on or after 1 January 2021 should seek legal advice about their specific supply chain and product-related (i.e. product restrictions, labelling, and so on) issues, as well as customs requirements. What follows is a quick, non-exhaustive checklist highlighting key areas for Hong Kong traders who are used to selling online to Europe using the UK as a gateway.

New Documentation and Certification Requirements

• From 1 January 2021, all UK businesses located in Great Britain (i.e. England, Scotland or Wales) that import or export goods to or from the EU need an Economic Operator Registration and Identification (EORI) number that starts with GB. This number would need to be quoted on a variety of official forms and correspondence, including customs declarations and clearances.
• Customs declaration forms will be required to ship to countries in the EU from the UK.
• A Commercial Invoice, a CN22 or CN23 customs declaration form for international shipping, and a certificate of origin, are or may be required. 

Commercial Invoice

• • A Commercial Invoice is a customs document which includes information about the contents of the package and any agreed terms. A Commercial Invoice should be attached to any commercial shipment going abroad.
  • It is understood that in general three copies of a Commercial Invoice are necessary – one for the country being exported from, one for the country being sold to, and another for the recipient.

CN22 and CN23 customs declarations

• • From 1 January 2021, e-commerce retailers sending packages through the UK’s Royal Mail or other postal services will need to complete either a CN22 or CN23 customs declaration form when shipping to the EU or EEA countries.
  • This includes any shipment that is sent through the UK’s Royal Mail or other postal services that contains items with a commercial value for they will be subject to fees and taxes. It appears that there is unlikely to be a need for a CN22 or CN23 form for shipments sent by an international courier. When shipping goods using an international courier, a commercial invoice must be used. However, for the avoidance of doubt, as there are many different international couriers in operation, it is worth checking with them whether a CN22 or CN23 form is or is not required.  
  • Form CN22 must be used and attached for internationally shipping products that have a value up to £270. If the value is higher than £270 the Form CN23 must be used and attached. A despatch note (ie., an address card) CP71 is a mandatory document which accompanies the CN23 declaration. Please click on the following hyperlink for more information about the CN22 and CN23 customs declaration forms. 
  • Such forms must be filled out accurately, with information about the goods being shipped including their weight. This information is used to assist customs in checking the contents of packages leaving the UK via Royal Mail or other postal services. The forms help customs to assign the correct duties and charges that need to be applied. The forms also aid in the monitoring of prohibited goods being shipped.
  • The e-retailer might need to also include a commercial invoice along with a CN22 or CN23, but this depends on the carrier and destination. It may be prudent to include both as this means the package will be covered and will be less likely to suffer delays.

Certificate of Origin

• • A Certificate of Origin depicts the origin of a product and certifies in which country a product was made or substantially transformed. This is required when importing goods from a number of countries outside the EU.

Testing and Certification

• From 1 January 2021, EU product-related rules will no longer apply to the UK market. These rules concern products of interest to Hong Kong exporters including toys, electronics, PPE, machinery and medical devices. The UKCA (“UK Conformity Assessed”) marking will replace the CE marking for those products placed on the UK market. However, CE marking which is based on self-declaration of conformity by the manufacturer is still possible until 31 December 2021 for the UK market, with an exception for medical devices until 30 June 2023. The CE marking will only be valid in the UK for areas where the UK and EU rules remain the same. If the EU changes its rules and a product is CE marked on the basis of those new rules, the CE marking can no longer be used to sell that product in the UK.

• The new UKCA marking will have to be used immediately from 1 January 2021 if all of the following apply to the product concerned: it is to be placed on the UK market; it is covered by legislation which requires the UKCA marking; it requires mandatory third-party conformity assessment; and conformity assessment has been carried out by a UK conformity assessment body (and the manufacturer has not transferred its conformity assessment files from the UK body to an EU-recognised body before 1 January 2021).

The E-Commerce Directive

• On 31 December 2020, the UK government published Guidance titled “The eCommerce Directive after Brexit”. It is noted there that on 1 January 2021, the EU e-commerce Directive stopped applying to the UK. Therefore, those located in the UK providing online services to EU/EEA countries may need to take steps in response to this change. The Guidance advises that UK companies should consider whether their services were previously in scope of the Directive, and if so, ensure that they are compliant with relevant requirements in each EU/EEA country they operate in. The e-commerce Directive applies to “information society services”. This covers the vast majority of online service providers – for example online retailers, video sharing sites, search tools, social media platforms and internet service providers.

• Hong Kong companies established in the UK should check for any legal requirements in any EU/EEA countries they operate in. The rules that they may need to start following are those that fall within the e-commerce Directive. These include legal requirements in individual EU/EEA countries which apply to information society services – for example, rules relating to online information, online advertising, online shopping and online contracting.

• The e-commerce Directive however does not cover tax, legal requirements relating to goods such as safety standards, labelling obligations or liability for goods, and requirements relating to delivering or transporting goods.

• Depending on the nature of the e-retailer’s online services, it may already comply with the e-commerce Directive’s requirements. This could mean that there are little or no immediate changes it needs to make in order to be compliant.

Great Britain to Northern Ireland

• On 31 December 2020, HM Revenue & Customs (HMRC) published Guidance on sending parcels between Great Britain and Northern Ireland from 1 January 2021. This Guidance addresses businesses or individuals using an express carrier (including the Royal Mail Group) to move parcels between Great Britain and Northern Ireland.

• Until 31 March 2021, HMRC is adopting a temporary approach to applying declaration requirements for the movement of goods in parcels by express carriers and the UK’s Royal Mail. For example, Northern Ireland residents can continue to receive goods from Great Britain as they usually do, with no new requirements. However, where businesses in Great Britain send excise goods or restricted and prohibited goods to Northern Ireland residents and businesses using an express carrier or Royal Mail, the Great Britain business should inform its express carrier or the Royal Mail, which may ask for additional information for a declaration to be made.

Useful websites

• UK Gov Guidance: EU business: importing from the UK
• European Commission: BREXIT: End of the transition period
• European Commission: checklist for doing business with the UK
• UK Gov: Import, export and customs for businesses: detailed information

[1] The OSS is a scheme whereby the supplier can fulfil all the VAT obligations (reporting and payment) in one Member State either directly or via an intermediary appointed for this purpose. The VAT paid by the consumer to the supplier at the time of sale is declared and paid through a single VAT return on a monthly basis directly by the supplier or his intermediary. As a result, the import of the goods into the EU is exempt from VAT.

[2] All tariffs below 2% will be removed, while tariffs under 20% will be rounded down to the nearest 2% band, those between 20 and 50% are rounded down to the nearest 5% band, and those above 50% are rounded down to the nearest 10% band.