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Brexit deal – initial thoughts and implications

Tom Rathborn Tom Rathborn

Four and a half years after the Brexit referendum, the UK and the EU have reached an agreement on their future trading relationship. Tom Rathborn takes a quick look at what has been agreed and what it means for business.

Good news first, we have a deal.

After months of will-they-won’t-they and increased speculation around No Deal Brexit, the UK and the EU have finally reached an agreement on their future trading relationship.

This mammoth negotiating task, delivered against the backdrop of the COVID-19 situation and produced in record time, will be welcome news to business.  

The bad news, we still don’t fully understand the detail and won’t do before its implementation in just a few days’ time.

The complete text, all 1246 pages of detail, will take some time to digest and we await full guidance on how changes will be implemented. It's also important to acknowledge that many areas key to businesses were not covered by the deal, with further negotiations ongoing. These include final decisions on data adequacy and financial services equivalence. 

Let’s be clear - Brexit is by no means over and our relationship with Europe will continue to change over time.

With that in mind, here is an initial run through of the high-level impacts and what they mean for business.

Wholesale change on 1 January 2021

There is no all-encompassing implementation period for businesses to process new rules and respond accordingly. Though there are some areas being phased in, many businesses will return to the office in January facing new barriers to European trade that were not there when they left.

Multiple new bodies to finalise and manage this new relationship

A new Partnership Council, co-chaired by the European Commission and the UK government, will oversee the agreement’s implementation and management. A large number of committees and working groups will be established to oversee the details of new arrangements at a more-granular level, including resolving any technical issues arising from the agreement or ensuring proper functioning of new rules.

The new UK-EU relationship is fluid, and these bodies will be making judgments and issuing guidance that will have the potential to change market access and frameworks. In short, things are likely to change and there will be an extended period of adjustment.

No tariffs/quotas – but change is still coming

While this agreement is the first in EU history to eliminate all tariffs and quotas, changes are still coming.

To qualify for tariff-free access, organisations will need to meet Rules of Origin (RoO) requirements, proving that the goods originated in the UK. Some of these requirements may be loosened for transitional periods and manufacturers will be able to ‘cumulate’, meaning they can count both UK and EU parts towards necessary thresholds.

Read HMRC's guidance on Rules of Origin >>

In addition to these requirements, from 1 January, all goods traded between the UK and any other country will be regarded as imports or exports requiring customs formalities at the port of departure and arrival.

New technical barriers to trade

The deal includes no broad ‘mutual recognition of conformity assessment’, meaning that many UK products will need to undergo two separate conformity tests, rather than one, if destined for the European market.

Changing rules over service provisions

The impact will vary across each member state.

The UK and the EU have agreed to make commitments on market access for services, national treatment (preventing discrimination between their nationals) and local presence (avoiding the need for local subsidiaries).

There is also a ‘most-favoured nation’ clause, which ensures that, if either the UK or the EU gives more-favourable terms to another country in future, those terms will automatically extend to the UK/EU deal.

However, these provisions are subject to a long list of exceptions, which vary from one member state to another.

You'll have to check each member state's rules to assess the impact.

Financial services rules to be agreed

There's very little in the agreement to provide financial market access.

Decisions on access to each other’s markets will be based on ‘equivalence’, rights that can be withdrawn at just 30 days’ notice.

While the UK has granted the EU a large number of equivalencies, the EU has only taken temporary decisions in a limited number of areas deemed vital to financial security. It's waiting for further clarification from the UK government about its intended approach to financial regulation before granting any additional access.

This decision will not come before 1 January.

UK businesses will retain access to EU public procurement

The new arrangement is based on the WTO Government Procurement Agreement (GPA).

The UK and EU have also agreed an extension of market access coverage beyond the GPA, which includes:

  • the gas and heat distribution sector
  • private utilities that act as a monopoly
  • a range of additional services in the hospitality, telecoms, real estate, education and other business sectors.

For many this should mean a limited impact on their current practices.

Details on data adequacy to be finalised

The EU has agreed to a temporary four-month arrangement from 1 January, 2021 to allow data to continue being transferred between the EU and the UK.

Data adequacy was not part of the agreement, though the EU will undertake an adequacy assessment in due course and the UK has granted the EU data adequacy.

Find out more about safeguarding data transfers >>

UK organisations can still access Horizon funding

Further details will be published but science and research will be eligible for funding from the new Horizon Europe scheme – due to run from 2021 to 2027 with a proposed budget of over EUR 80 billion.

New rules for working in Europe

To confirm, the free movement of people ends for the UK.

Visa-free, short-term business trips are permitted between the UK and the EU for specific purposes such as attending meetings, training seminars and trade fairs, purchasing goods or services and taking orders or negotiating the supply of services or goods.

These visits will be limited to 90 days in any 180-day period.

Work trips will also be permitted for establishment purposes, intra-company transfers, contractual service suppliers, and independent professionals. Within these categories, there will be no market access restrictions (such as economic needs tests and discrimination based on nationality), although a number of EU member states have reservations (opt-outs), which mean additional barriers may apply.

It's going to be harder to work overseas, but by how much will depend on the nature and location of the work. 

No automatic recognition of professional qualifications

There is no mutual recognition of professional qualifications – meaning no new qualifications will be recognised on day one.

Talks are ongoing over an EU-wide mechanism for qualifications to be recognised in the future. 

In the meantime, you will have to comply with national requirements in each member state.

New social security arrangements from 2021

UK nationals travelling or working in the EU will retain some benefits including state pensions and healthcare.

The transitional arrangement in the Withdrawal Agreement covers assignments that began in 2020 and carry on un-interrupted.

From 1 January 2021, new rules apply to assignments that start after that date:

1 Each EU country has the option to opt in or out of ‘detached worker’ rules, which effectively mimic the old ‘posted worker’ rules.

If the country opts in, then the detached-worker rules apply to assignments of up to two years to those countries from the UK and vice versa. This means a UK employee working temporarily in the EU should remain subject to UK National Insurance Contributions (NIC) only and will not need to pay social security in the overseas location.

If the country opts out of the new rules, the individual will be required to pay social security in the country in which they are physically working (unless their secondment started prior to that country opting out). If they are subject to the overseas social security, they will not be required to pay UK NIC, but may choose to make voluntary contributions.

2 There are new multi-state worker rules that apply, which are very similar to the old rules, and a UK employee working predominately in the UK should remain subject to UK NIC only.

For UK employees going to work in Norway, Iceland, Switzerland and Liechtenstein, there will be slightly different arrangements. 

For UK employees going to work in Ireland, the 2019 Irish Social Security Reciprocal Agreement should determine where they are subject to social security.

We still don’t know what countries will opt in or out as each country has until 1 February 2021 to confirm.

We should know more at the start of the new year when the first provisional list is published.

Responding to all this change

The short turn-around time, combined with the holiday period and ongoing coronavirus disruption means that it will be virtually impossible to respond fully and in time to all these changes.

We will learn on the go, responding to new details and clarifications as they come. In some areas, phased implementation will provide a buffer; in other areas, the impacts will be more abrupt.

If you have a detailed Brexit plan, you should review any No Deal contingencies to understand which are still relevant.

Everyone else should focus on the fundamentals of their business – understanding what Brexit means for the day to day and responding accordingly, focusing on compliance and business continuity.  

In the new year we will be issuing more-detailed guidance on key issues, running webinars and workshops to support your business.

Keep an eye on our Brexit hub for more details as things progress, and let us know if you need support.

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