Overview of free trade agreement between UK and EU

Overview of free trade agreement between UK and EU

A free trade agreement between the UK and the EU came into force on 1 January 2021, following the end of the “Brexit” transition period.


The free trade agreement includes the following customs and tax implications for businesses.

Customs—Documentation and tariffs

  • The process at the UK-EU border changes. Customs declarations on either side of the border will be required, and business will have to put in place further preparations, including having registrations and data to support these declarations.
  • If these issues remain unresolved, the ability to import and export post-transition would be compromised. Contracts must be in place because capacity in the customs clearance market is constrained.
  • A deal means customs duty and quota-free access to each other’s markets, but only for goods that meet specific rules of origin. It is not necessarily the case that all goods moving across the UK-EU border will be duty-free. Control mechanisms will be needed to assess whether the rules of origin have been met.

Customs—Northern Ireland

  • Controls on imports into Northern Ireland from other parts of the UK begin 1 January 2021, with security and fiscal import declarations being required. An additional three-month period of transition will be provided to agri-food importers to prepare for a more physically-based control regime.
  • Customs duty will be due on Great Britain goods “at risk” of movement to the Republic of Ireland. Broad definitions of particular trades or traders that are deemed to be “not at risk” are part of agreements in principle reached by the two sides in late 2020. This includes a new UK “trader scheme.”
  • Other parts of the agreements in principle cover access of Northern Ireland goods into the rest of the UK without the need for export declarations and duty.

Tax implications

  • The UK no longer has access to EU directives, leading to additional taxation on certain transactions, and no longer has access to the arbitration convention governing tax disputes.
  • The agreement contains provisions for coordination of social security. UK nationals travelling, working or living in the EU (and vice versa) will retain entitlements to some benefits. Cross-border workers and employers will only be liable to pay social security contributions in one state at a time.
  • A broad range of legislation and treaty law ceases to apply where there are provisions governing EU established entities.

State aid and “level playing field”

  • The agreement contains some “level playing field” provisions. The UK agreed not to undercut current levels of protection in areas such as environmental standards and labour laws.
  • There is also a “rebalancing mechanism” to manage future divergence. Both sides can diverge from aspects of the agreement but also have the authority to impose temporary tariffs if they believe there are distortions to trade or investment.
  • A formal review of the level playing field arrangements can take place after four years. This could lead to both sides changing the baseline standards over time. However, failure to reach an agreement on new standards could result in tariffs being imposed or a suspension of the trade part of the deal.
  • Both sides agreed to common principles on state aid. The UK is also bound by state aid restrictions in its bilateral free trade agreements as well as through the rules of membership of the World Trade Organization (WTO) and its commitments to the Organisation for Economic Co-operation and Development (OECD) in relation to harmful tax practices.
  • An increase in government activity may be expected in some areas that were previously restricted under the rules of the single market, including the expansion of regional or sectoral grants, tax incentives or holidays (possibly focused around the planned “freeports” programme).

Read a December 2020 report [PDF 720 KB] prepared by the member firm in the UK

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