Brexit Archive

On 9 November 2020, the Chancellor confirmed that, from 1 January 2021, UK businesses which supply certain financial and insurance services (specified supplies) to customers located in the EU would be able to recover VAT on associated costs.

This means that the treatment for both EU and non-EU customers will be the same after Brexit.  This is welcome news for UK businesses operating in those sectors as it provided certainty after a period when it wasn’t clear how HMRC intended these supplies to be treated and could also represent a significant VAT saving for UK financial service providers.

Background

Under the current UK VAT legislation (Value Added Tax (Input Tax) (Specified Supplies) Order 1999 (SI 1999/3121)), a supply of ‘specified’ exempt supplies still gives the right to input tax recovery for a UK supplier which makes supplies of insurance and financial services customers outside the EU.  The list of ‘specified supplies’ are:

• supplies of finance, insurance services, or investment gold to customers in countries outside the UK or EU; and
• supplies of insurance or finance services (including intermediary services) which are directly linked to the export of goods outside the UK or EU

Under the existing rules, businesses making these supplies suffer a VAT cost on the inputs used for making supplies to UK and EU customers.

Businesses which make supplies to non-EU customers who would not otherwise have any right to register for UK VAT can also voluntarily register for VAT in the UK to recover VAT on costs incurred in making these supplies.

The government previously published Regulations in 2019 which suggested the specified supplies rules would be extended to include supplies to EU customers – given that these EU Member States would be ‘third countries’ after Brexit – if there were no deal agreed.  However, the Regulations were never enacted and until last week businesses had no certainty whether the UK would implement these changes on 1 January 2021.

Practical implications

The above change will have a significant impact on the VAT recovery position of UK financial and insurance institutions as they will be able to recover VAT on relevant services provided to non-UK customers. Businesses should review their partial exemption position and consider how this will impact on the structuring of future arrangements.

Possible opportunities for businesses to take advantage:

1. Businesses which only provide specified services to UK and/or EU customers may currently have no basis on which to register for VAT in the UK. As a result, input tax incurred on its costs represent an absolute cost to the business.  From 1 January 2021, these businesses will be entitled to voluntarily register for VAT in the UK and recover the proportion of VAT they incur in the course of making supplies to EU customers;
2. Companies who are currently VAT registered make specified supplies to EU customers will have to restrict input tax recovery on VAT incurred in the course of making supplies. Such businesses will now see an uplift of VAT on these costs.  Businesses in this position may wish to consider whether the ‘standard’ method of apportioning VAT between taxable and exempt supplies based on turnover gives a fair and reasonable rate of VAT recovery.  If not, they could look to whether an alternative method of apportionment could be agreed with HMRC to maximise the benefit to them;
3. Businesses making supplies to UK, EU and non-EU customers may already have agreed a VAT recovery method with HMRC based on factors such as the volume of transactions, number of customers based outside the EU etc. If you are in this position, you should re-visit your current method and satisfy yourself that it continues to provide a ‘fair and reasonable’ method of apportionment post-Brexit.  HMRC may also seek to review your method given the likelihood of increased recoveries and could seek to re-impose a standard method or re-negotiate a new agreed method if they don’t consider that the ‘fair and reasonable’ test is met.

Commentary

Given that many businesses are currently struggling with the implications of Brexit from a wider Indirect Tax perspective – whether in terms of physical supply chains, B2C retailers or B2B suppliers of certain performance services – this announcement is a welcome positive announcement from the Chancellor.  However, as above, whilst this should provide an uplift in VAT recovery, businesses still need to, firstly, be aware of the change, and secondly, take steps to consider how the change will impact them and what next steps need to be taken.  As with all things Brexit, taking a proactive approach to the changes and how they affect your business is the first step to ensuring that after 1 January 2021, you are in the best operational, commercial and financial position possible.

Finally, whether this announcement will lead to such significant benefit for the financial services sector will to a large degree depend on whether the changes brought about by Brexit will result in a shift in the financial services landscape in the UK.  For example, whether regulatory issues or any grandfathering provisions will mean that UK businesses in the sector are still able to trade with the EU or whether we will see significant moves from the UK to non-EU financial services hubs.

The UK is in the transition period as it leaves the European Union. On 1 January 2021, the transition period will end, and this means big changes for business. From 1 January 2021, the UK will introduce a new system of immigration control. For the first time in decades, EU/EEA and Swiss nationals will be subject to the same immigration controls as non-EEA nationals.

Right to work

If your business currently employees EU/EEA or Swiss citizens, they must apply for either Settled or Pre-Settled status under the EU Settlement Scheme. It is in the interests of business owners to ensure that all affected employees have the right to work in the UK so that they can continue to be legally employed.

Until 30 June 2021 Employers will continue to be able to confirm an EEA national’s right to work using only their passport or national ID card. From 1 July 2021, employers must see proof of immigration status either from the EU Settlement Scheme or from the new immigration system. With the deadline for applications approaching, it is imperative that this process is now completed. This is an issue to be handled sensitively by employers; an employer is obligated to ensure that their workforce each has the appropriate right to work in the UK, but should be aware that employees are not obligated to disclose whether they have applied for Settled or Pre-Settled Status for fear of discrimination. It is an employer’s duty to keep copies of right to work documentation and ensure that they keep their records up to date.

Will you need a sponsor licence?

From 1 January 2021 employers will need a sponsor licence to employ anyone who does not hold British citizenship or who does not have Indefinite Leave to Remain. This is a significant extension of the current rules whereby a sponsor licence is not required for employing EU citizens.

Where it is commonplace for UK business to employ EU citizens, the Home Office is anticipating an influx of applications for sponsor licences and are actively encouraging business to pre-plan and submit their applications well in advance of the 31 December deadline.

The current processing time for a sponsor licence application is estimated at 10 weeks from the date that the supporting document pack is received. It is important to recognise that, even though your business might not have a current need for a sponsor licence, it is beneficial to take a pre-emptive approach to this. If it is foreseeable that any individuals of foreign citizenship will be brought into your business, then you should consider making your application as soon as this potential need is identified so that your business has the essential infrastructure in place to aid the recruitment process.

Skilled worker visas

The current Tier 2 (General) and Tier 2 (Intra-Company) visas are going to be replaced with the Skilled Worker Licence and the Intra Company Transfer Licence. Individuals applying for the new visa routes will need to satisfy the pre-requisites set by the Home Office. Whilst the need to fulfil certain criteria when applying for a visa is not new, the biggest change to the system is the nature of the criteria and the way that these are assessed. Using the points-based system means that different job roles will be allocated different amounts of points as well as the salary level and English language requirements that must be satisfied, again different levels will be awarded different points. Employers and businesses will need to ensure that, where they are looking to sponsor a migrant worker, the job role is appropriately placed to satisfy the Skilled Worker requirement and that they have the relevant sponsor licence in place and are able to successfully support their employee’s visa application.

Shortage occupation list reviewed

The Migration Advisory Committee has reviewed, and added to, the Shortage Occupation List. This is in anticipation of a deficit workforce being identified after the freedom of movement from the European Union ceases on 31 December 2020. Some of the new occupations included in the list are; senior health and social care workers, butchers, bricklayers, electricians, welders and graphic designers. The most noticeable effect of the enhanced list of shortage occupations will be felt when the points-based immigration system is introduced on 1 January 2021, enabling those working in shortage occupations to more easily gain the required points to satisfy the visa application requirements.

Planning ahead

If you are not already a licensed sponsor and you think you will want to sponsor EU/EEA and Swiss employees who arrive in the UK through the skilled worker route from January 2021, you should apply now. Price Bailey is well placed and highly experienced in providing advice and assistance on making a Sponsor Licence application. Please get in contact with the team if you would benefit from discussing the next steps for your business.

Covid-19 and its implications have dominated 2020, Brexit has until now taken a bit of a back seat. Still, come the end of the year, when the transition period ends, there are some implications for all businesses.

Impact of Brexit on employment law

A significant proportion of the UK’s employment law comes from the EU, including discrimination rights, family leave and working time regulations, to name a few.

Most EU-derived employment legislation will remain applicable in the UK immediately after the end of the transition period unless and until altered by the appropriate UK legislative body. As we understand it, the government is committed to ensuring that the UK workers’ rights remain aligned with EU employment protection. The reason for this being that not to do so would, in many cases, be controversial. So, for the time being, there are no anticipated changes to employment law.

Data protection and GDPR in a post-Brexit world

After the Brexit transition period ends on 31 December 2020, the EU GDPR will no longer be law in the UK. However, the UK government intends to write the GDPR into UK law so, from all practical perspectives, GDPR will continue to apply.

The government has said that transfers of data from the UK to the EU/ EEA will not be restricted. However, from the end of the transition period, the UK will be a “third country” in the eyes of GDPR. The transfer of personal data from the EU/EEA to the UK will only be allowed if ‘appropriate safeguards’ are in place. The action required will vary according to whether there is a deal or no deal. If there is a deal, then it is likely that the EU will make an adequacy decision which will allow for the free flow of personal data from the EU/EEA to the UK.

However, if there is a no-deal, then GDPR transfer rules will apply to any data coming from the EU/EEA into the UK and organisations will need to consider what GDPR safeguards should be put in place to ensure that data can continue to flow into the UK.

Our Advice: understand your international flows of personal data, so you are best placed to take any action in January 2021 if necessary. The key transfers to identify will be from the EU/EEA to the UK.

Impact of Brexit on your workforce: Freedom of movement

From January 2021, there will be a new immigration system. From this date, there will be no free movement into the UK for EU/EEA/Swiss nationals.

EU/EEA/Swiss nationals who have lived in the UK lawfully for a period of time on or before 31 December 2020 (the end of the transition period) can apply for “settled status” to stay indefinitely under the EU Settlement Scheme if they have lived here for 5 or more years or “pre-settled status” if they have lived here for less than 5 years. This will allow them to continue to work in the UK. The deadline for submitting applications for settled or pre-settled status is 30 June 2021. Organisations should inform and support employees with registration.

Irish citizens will continue to enjoy free movement into the UK. They do not need to apply for settled or pre-settled status.

Any business that wants to employ (or continue to employ) an individual who is not British and has neither settled nor pre-settled status or indefinite leave to remain, must have a Sponsor Licence in place.

UK based British Citizens who work in multiple EU Member States will need to plan their travels carefully; as freedom of movement will cease to apply, they may need to obtain multiple work permits, visa and/or residence permits to work at EU sites/ offices.

Our Advice: carry out an audit of your workforce to understand what their right to work requirements are, and make sure both you and your workforce are aware of your obligations.

Brexit and contracts

Some of the terms in existing contracts may no longer be relevant post-Brexit or may raise legal or practical questions in the future.

If your contracts, for example, terms of business, sale of goods or employment contracts make reference to the UK being a member state of the EU or rely on EU regulation, they will need revising.

Our Advice: start reviewing what contracts you have in place.

This article was written by Claire Berry, an Employment Solicitor at Price Bailey If you are unclear on any of the upcoming changes or any of the potential changes that are on the horizon, Price Bailey is well placed and highly experienced to provide you or your business with advice and assistance on any of the issues covered in this update. Please get in contact with the team if you would benefit from a discussion of the next steps for your business. If you have any questions or require any assistance, you can contact Claire and the employment team on the form below.