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March 1, 2022updated 22 Jul 2022 11:10am

Impact of Brexit on Apparel: Regulatory trends

Brexit has brought many changes in financial regulations. One such change is that European Union (EU) retailers selling products in the UK will have to pay value-added tax (VAT) from the point of sale rather than the point of importation. They also need to set up an account with Her Majesty’s Revenue and Customs (HMRC). Also, marketplaces such as Amazon and eBay will now be able to collect VAT due from sellers and send it to HMRC.

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What are the key consumer trends driving FMCG in 2022?

The consumer landscape has permanently changed since the COVID-19 pandemic began, prompting trends to emerge or accelerate, causing subsequent macro-economic shifts. In order to stay relevant, Consumer Packaged Goods companies must stay abreast of these developments. It is here that GlobalData can offer valuable assistance. Download GlobalData’s Trendsights: Trends to Watch in 2022 report to:
  • Gain insight into the 12 most important trends across the FMCG value chain
  • See the consumer survey data that underpins these insights
  • Learn what early-movers are already doing in terms of NPD and product marketing
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Listed below are the key regulatory trends emerging as a result of Brexit, as identified by GlobalData.

Changes in duty-free limits

From January 2021, passengers travelling from the UK to the EU can make duty-free purchases, making the UK’s duty-free approach to the EU in sync with the rest of the world. At the same time, the amount that passengers from non-EU countries can bring back to the UK has also significantly increased, to become in line with the EU countries.

As per the new UK Global Tariff (UKGT), the average customs duty tariff rate will reduce from 7% to 6%. The UKGT applies to around 9,500 products and over 2,500 items are now tariff-free following Brexit.

Certain products used to produce clothing and accessories such as sewing machines, full grains leather, cotton yarn, cotton fabric, parts of footwear and hats now come under the duty-free regime. However, some products such as finished clothing and footwear still have tariffs; for example, women’s or girls’ dresses at 12%.

Tax-free sales

Following Brexit, the UK government ended tax-free sales in airports for product categories such as clothing for passengers travelling to non-EU countries. The decision to end tax-free sales of these categories was taken on the back of concerns that the tax-concession may not always be passed on to consumers in the airports. In addition, in many cases these tax-free products are brought back into the UK by residents, ultimately putting high street retailers at a disadvantage.

VAT Retail Export Scheme

As part of these changes, international visitors are no longer able to claim VAT refunds in British stores. Following the changes, though international visitors will still be able to buy items VAT-free in stores and ship them directly to their overseas addresses, the system of claiming VAT refunds on items they take home in their luggage will end.

Changes in visa rules

While there were no changes to how people travel between the UK and EU during the transition period, the rules were slightly amended at the start of 2021. Passengers who are on a short trip need not worry about travel visas as they will be able to stay in the UK for up to 90 days in any 180-day period. Travellers may require a visa or permit to stay and work for a period longer than 90 days.

Irish citizens will be able to enter to work or study in the UK without a visa. The requirement for travellers from an EU country or Norway, Iceland, Switzerland, or Liechtenstein to show a valid passport or national identity card at the UK borders will not change.

Trade with the EU

Under the UK-EU Trade and Cooperation Agreement (TCA), the UK and EU agreed to unprecedented 100% tariff liberalisation. This means there will be no tariffs or quotas on the movement of goods between the UK and the EU. This is the first time the EU has agreed a zero tariff zero quota deal with any other trading partner. However, the goods are required to meet the relevant rules of origin to enjoy zero tariff rates.

The UK and EU have agreed on a rules of origin Chapter to ensure that only ‘originating’ goods are able to benefit from the liberalised market access arrangements agreed in the TCA, while reflecting the requirements of UK and EU industry. The Chapter also provides for full bilateral cumulation (cumulation of both materials and processing) between the UK and the EU, allowing EU inputs and processing to be counted as UK input in UK products exported to the EU and vice versa.

The TCA also includes a Technical Barriers to Trade (TBT) Chapter which addresses regulatory barriers to trade between the UK and EU, while allowing both sides the freedom to regulate goods in the way most appropriate for their own market. This Chapter builds on the World Trade Organisation’s (WTO) TBT agreement and includes provisions on technical regulation, conformity assessment, standardisation, accreditation, market surveillance and marking and labelling.

Trade deals with countries other than EU

As the UK and EU agreed to a post-Brexit trade deal, the UK is now free to strike trade deals with other countries. The UK government’s interest to engage in bilateral trade deals with countries outside of the EU will provide opportunities for both consumers and retailers.

In September 2020, the UK and Japan signed a free trade agreement that came into effect on 1 January 2021. The partnership is a steppingstone for the UK to join the Trans-Pacific Partnership (TPP). Subsequently, on 2 June 2021, the UK Government announced that its accession process towards the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) began.

The UK government also reached a trade agreement with Australia on 15 June 2021, which is yet to be implemented. Such initiatives will lead to more opportunities for consumers and retailers to get and provide access to a much more diverse range of products at competitive prices.

This is an edited extract from the Impact of Brexit on Apparel – Thematic Research report produced by GlobalData Thematic Research.

Free Report
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What are the key consumer trends driving FMCG in 2022?

The consumer landscape has permanently changed since the COVID-19 pandemic began, prompting trends to emerge or accelerate, causing subsequent macro-economic shifts. In order to stay relevant, Consumer Packaged Goods companies must stay abreast of these developments. It is here that GlobalData can offer valuable assistance. Download GlobalData’s Trendsights: Trends to Watch in 2022 report to:
  • Gain insight into the 12 most important trends across the FMCG value chain
  • See the consumer survey data that underpins these insights
  • Learn what early-movers are already doing in terms of NPD and product marketing
Take a look at this report to give yourself the best standing in this developing market.
by GlobalData
Enter your details here to receive your free Report.