When the Brexit transition period ends on 31 December 2020, the UK will begin a new economic relationship with the EU — either with a trade deal or with ‘no deal’.
Change for business is inevitable – regardless of whether a deal is agreed.
In our latest blog we provide some areas that should be given careful consideration for those businesses that will be impacted by Brexit.
1. Impact of freight and customs arrangements
Look at your supply chains/routes to market that may come under pressure and disrupt the flow of your goods. Develop contingency plans for routes that will most likely present the highest risk for delayed and disrupted deliveries.
Practical considerations include:
– Confirming what duty tariff you will be paying on your trading goods – some tariff rates will go up, but others will go down
– Protect your cashflow from short term customs duty and VAT charges
– Check that your systems are set up to handle the new VAT requirements and customs arrangements and make sure your teams have been trained on what they need to do
– Get advance supplies in place now to avoid any border delays
2. Assess your supply chain
Understand the potential liabilities in your supply chains, based on your contractual agreements with suppliers and customers.
Once you have identified these, you should look at:
– Country registration and reporting requirements for both customs duty and VAT
– Payment of customs duty and VAT
– Payment of increased freight forwarder costs
– Introduction of commercially beneficial contracts with suppliers and customers
– The use of customs schemes (e.g. Authorised Economic Operator) to gain secure fast port clearance benefits and to support the use of duty reliefs
3. Regulations and compliance
Businesses that are responsible for moving goods between the UK and the EU will face additional customs compliance obligations, notably customs declarations, as the movements become imports and exports. Check:
– You have the licences/permits/approvals you need in all the other EU states in which you operate to ensure a smooth transition post Brexit. So, for example, are local VAT registrations needed? Are you required to change your product labelling? Will any new tariff payments be needed?
– That Incoterms (international commercial terms that define responsibilities relating to the import and export of goods) reflect buyer and seller responsibilities appropriately
– Obtain an economic operator registration and identification (EORI) number for use in the UK (and a separate one for the EU if necessary)
– Line up the necessary resources, data, and systems for completing customs declarations
4. People and workforce planning
Brexit will significantly impact your talent pool and operating models. Plan out any potential associated risks and mitigation tools to deal with the workforce. Ensure employees’ tax liabilities, social security status and healthcare rights have all been addressed.
– Calculating the changes to assignment costs for mobile employees as a result of potential dual social security liabilities
– Communicate with employees around any potential impact on their social security position, access to benefits, and steps being taken to mitigate any impact
– Work with the payroll teams in home and partner countries to enable them to perform the appropriate calculations and filings and deal with dual liabilities
5. Tax and finance
Analyse short-term cash flow and devise them based on different scenarios and working capital requirements. The way in which VAT is accounted for is also changing, so understanding whether you need to change the VAT rates of any of your products or services and whether you need to register in any other EU countries is critical.
– Bringing forward dividend, loan interest/capital payments and royalty payments to benefit from existing rules
– Using potential duty reliefs such as customs warehousing and processing to minimise liabilities
– Mapping out supply chains for goods and services to identify where changes to VAT law will impact the business, including changes to reporting and administrative requirements
6. IT, systems and data
Expect Brexit to affect your IT systems and infrastructure. For example sales, procurement, and point of sale systems may have to reflect new supply chains or tax treatments.
– Identifying systems and processes that need updating to manage the tax and duty reporting requirements arising from Brexit
– Identify where changes are required to master data such as customs classification and tax codes
– Ensure sufficient lead time for changes to be made
7. Commercial, legal and pricing
Identify and engage with priority customers, considering possible increases in costs and border delays and noting that these will likely arise both in a deal and no-deal scenario. Understand impact of changes in costs across end-to-end value chain and consider the tie-in period and impact on existing contracts.
– Check material business-critical contract terms to assess risk of termination or significant liability from any inability to perform your obligations and plan accordingly. Claims related to delay penalties, Material Adverse Change (MAC) clauses, force majeure, time being of the essence and specific Brexit clauses could apply on or shortly after 31 December 2020.
– Review mechanisms for pricing, given the potential for new tariffs, VAT changes and other costs of trading
– Check if there are provisions for both parties to conduct reviews and renegotiation of prices, especially in contracts with a particularly lengthy term
– Look for arrangements which depend on regimes that may cease to apply, such as free movement of goods / services / people or EU trade deals. If new compliance procedures are introduced, is there any indication of which party will have to discharge that duty?
8. Northern Ireland
Continue to check for updates on Brexit guidance on moving goods under the Northern Ireland Protocol, including recent guidance from HMRC on VAT for Great Britain to Northern Ireland movements and EORI numbers.
– Mapping out existing supply chains for goods moving to, from and through Northern Ireland
– The associated customs compliance requirements and assess the systems and processes in place to manage these
– Any potential VAT implications such as reporting requirements for goods under EU VAT rules
Find out more from your local Chamber of Commerce
The East Lancashire Chamber of Commerce has developed a full suite of advice, visit their hub here.
In addition, The British Chamber of Commerce has a comprehensive Brexit hub, covering all aspects of business that will be affected by the transition.
Here to help
With less than a month to go until these changes come into effect, time is running short to implement Brexit readiness actions.
Our advisory services include business planning, cash flow forecasting and budgeting as well as helping you to deal with the Brexit associated complex tax matters. For more information on how we can help, please contact us on 01254 679131 or email email@example.com to find out how we can help.