UK shipping beyond Brexit

As with most business sectors, the eventual conclusion of the UK-EU Trade and Cooperation Agreement (TCA) came as welcome news to the shipping sector. Set out below is a commentary including some specific analysis of the TCA covering maritime transport, the movement of goods, fisheries, employment and tax issues as well as the future outlook for the sector.

While much of the UK maritime sector’s activity supports trade flows across the globe, there is significant maritime trade between the UK and the EU. Therefore, the inclusion of maritime transport in the TCA was important, in particular the section on International Maritime Transport Services (IMTS) which covers both freight and passenger transport. The IMTS section maintains the principle of unrestricted access to international maritime markets and trades. It applies both to ships flagged in the UK or EU member states and to ships operated by companies either in the UK or EU member states.

However, there are a number of practical issues for shipping not covered by the TCA. For ships’ operations, one of these issues is that Certificates of Competency (CoC) for crew issued by the UK are no longer automatically recognized in the EU. The EU has an existing mechanism for EU-wide recognition of CoC’s from a third country, such as the UK. But, for the UK, this will take some time during the course of 2021 to put into effect. In the interim, management of CoC validity will require close attention.

The TCA established a framework with zero tariffs and no quotas on goods moving between the UK and EU. However, the UK withdrawal from the EU, as widely trailed, has put up new barriers to the flow of goods, including new paperwork, customs checks, and health/standards checks for food and agricultural products. The implementation of all these new procedures is presenting numerous practical challenges including to shipping and certainly will take some time to fully bed in. To read more on this from BDO, please refer to the analysis by our Logistics experts here.

One of the most contentious areas of the TCA negotiations was on fisheries, particularly with quota shares of fish. Eventually a compromise was reached, such that UK fishing boats will secure an increased share of the UK fish quota phased in over a five year transition period up to 30 June 2026.

For employers, non-UK nationals are a key component of the shore-based workforce in the UK shipping industry. Employers who had EU citizens already on their payroll should encourage them to apply for pre-settled or settled status by the deadline, 30 June 2021, in order to maintain employment continuity for these personnel. Beyond those EU citizens who fulfil these criteria, in order to employ any further non-UK nationals, employers must engage with the UK ‘points based’ immigration system.

The TCA included a Protocol on Social Security Coordination. After so much uncertainty prior to the TCA, it is positive for employers from a social security perspective that the protocol largely confirms the position prior to withdrawal. Thus it can only be possible for an individual to be within the social security legislation of one country at a time and the potential scenario of compulsory double social security contributions will not arise – read more. That said, the employment taxes aspects of engaging EU crew members following the UK withdrawal from the EU will continue to present numerous practical issues, much as they did prior to the withdrawal.

Most of the UK tax rules as they affect shipping were not dependent on EU membership and thus most UK tax reliefs survive post the UK withdrawal from the EU. As a result, the UK will continue to be a business-friendly base from which to conduct shipping activities. In particular, the UK tonnage tax regime for shipping remains in place. Under the TCA, the EU State Aid regime will no longer apply though, of course, the UK’s own competition rules will continue in force. It is welcomed that the UK government is pro-actively considering enhancements to the existing tonnage tax regime.

The TCA provided welcome certainty in many aspects of the future business operating environment between the UK and the EU. The UK continues to offer excellent infrastructural support for shipping businesses, including unrivalled industry knowledge and expertise, and is the principal legal jurisdiction for shipping. Now outside the EU, the UK will continue to develop and it is important that the maritime sector remains in focus. As an example, the Freeports initiative should help encourage new investment, innovation and employment. All these factors, combined with the presence in the UK of leading maritime organisations, mean that the UK will continue to flourish as a centre of global shipping excellence following withdrawal from the EU.

The above article has been reprinted from the BDO LLP website.