Talk of the UK moving back towards the European Union has gathered pace, as both the new Government and EU members show signs of a coming together and potential second referendum.
Whatever the political outcome, businesses that trade across borders would do well to start thinking now about what each scenario could mean for their tariffs and paperwork.
For much of the past decade, the UK’s trading relationship with the EU has been treated as settled.
The Trade and Cooperation Agreement (TCA) set the terms in 2021 and most businesses have spent the years since adapting to customs declarations and rules of origin checks.
That picture is now being reopened. Prime Minister Andy Burnham has said his government will set out options for the UK’s long-term relationship with the EU, ranging from keeping the current arrangement through to rejoining in full.
A UK-EU summit is due to take place in Brussels on 20 November and several European leaders have publicly welcomed the prospect of a closer relationship.
The term “Breturn” has been coined to describe this shift, but it is worth being clear about what it does and does not mean, as no official decision has been taken.
Any significant change would need negotiation with Brussels and, for the more ambitious options, a clear public mandate most likely by a second referendum.
Our aim here is not to take a view on whether a closer relationship is the right path. It is to set out, in practical terms, how each of the options under discussion would affect businesses that trade goods or services across borders.
Why the EU relationship matters so much for trade
The EU remains the UK’s largest trading partner by some distance, with around 41 per cent of UK exports going to the bloc, while more than half of UK imports come from it.
The Office for Budget Responsibility (OBR) continues to assume that the TCA will leave UK trade around 15 per cent lower in the long run than it would have been under membership.
Option one: Building on the current arrangement
The most modest path would keep the UK outside the single market and customs union while adding sector-specific agreements.
Deals covering agrifood standards (known as SPS alignment), electricity trading, linking carbon trading systems and a youth experience scheme were close to completion earlier this year.
For most businesses, the current framework would stay largely in place. Customs declarations and rules of origin requirements would continue much as they do now.
Food and agricultural exporters would see the biggest practical change, as SPS alignment would remove many of the certificates and border inspections that have added cost since 2021.
One area to watch is the EU’s proposed “Made in Europe” procurement rules, which would favour EU producers.
The UK government has been pressing for UK companies to be treated as European for these purposes, which matters particularly to the automotive sector.
Option two: A customs union
A customs union would remove tariffs on goods traded between the UK and EU and do away with the rules of origin paperwork that currently decides whether goods qualify for zero-tariff treatment.
For manufacturers using components sourced from outside the UK, that alone would be a meaningful saving in time and cost.
There are important limits, though, as a customs union covers goods, not services. Regulatory checks on product standards and food safety would remain unless agreed separately.
Research from the Centre for European Reform suggests most of the fall in UK exports since Brexit stems from leaving the single market, so a customs union on its own would reverse only part of the effect.
The bigger change would be in trade with the rest of the world and inside a customs union, the UK would apply the EU’s common external tariff to goods arriving from outside the bloc.
That would affect the independent trade deals signed since Brexit, including CPTPP membership, which began in December 2024, and the UK-India agreement that came into force in July this year.
Those arrangements would need to be revisited and some could not continue in their current form.
Option three: The single market
Rejoining the single market would go much further, as it would also restore the free movement of goods, services, capital and people and would remove most regulatory barriers to selling into the EU.
For service businesses, including professional and financial services, this is where the largest gains are likely to lie, through mutual recognition of qualifications and easier cross-border working.
It would also come with obligations that Brussels regards as non-negotiable. The UK would need to align its rules with EU standards on an ongoing basis and accept the jurisdiction of the European Court of Justice on single market matters.
Single market membership does not automatically include a customs union. Norway, for example, is in the single market through the European Economic Area but sits outside the customs union, so customs declarations and rules of origin still apply to its goods trade with the EU. The UK could seek both, but that would be a separate decision.
Option four: Full EU membership
Full membership would bring together the customs union and single market, along with membership of the EU VAT area. This is where some of the most practical changes for finance teams would arise.
Sales of goods to EU business customers would no longer be treated as exports for VAT purposes. They would instead become intra-community supplies, with reporting through EC Sales Lists.
Import VAT on goods bought from EU suppliers would be replaced by acquisition VAT accounted for on the VAT return, and the customs declarations most businesses now treat as routine would no longer be needed for EU trade.
The process would be lengthy. The UK would need to apply under Article 49 of the Treaty on European Union and secure the unanimous agreement of every member state. Previous opt-outs, including from the euro and the Schengen area, could not be assumed.
Estimates of how long accession might take vary widely and UK officials have indicated that the next general election may be used to test public support.
How Reanda UK can help
As a member of Reanda International, a network of independent accountancy firms with a presence in around 50 countries, we work with businesses trading between the UK, Europe, China and markets further afield.
For now our team will continue to monitor the potential for a Breturn, so we can advise businesses around the world on the implication of any future arrangements.