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No-deal Brexit: What your business needs to consider and plan

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Has your business got plans in place for a no-deal Brexit?

Although the UK government and European Union (EU) say a no-deal Brexit is undesirable, it is the outcome for which they’ve produced the most guidance and documentation. It’s also one of the most likely outcomes based on the evidence we have right now.

Yet recent research by Sage shows that businesses simply aren’t preparing for a no-deal Brexit.

Just 26% of the 1,000+ UK-based small and medium-sized enterprises (SMEs) surveyed said they are preparing for a no-deal outcome, while an additional 27% said they were not currently preparing but would do so in the future.

Yet as the Brexit date of 29 March edges ever closer, businesses need to start planning for the contingency right now.

How a no-deal Brexit will affect businesses

There are two likely post-Brexit outcomes, outside of rumours or supposition.

The first is the passing of a revised version of the withdrawal agreement, even though the original was roundly rejected by the UK parliament in late 2018. This would create a post-Brexit withdrawal period lasting until December 2020.

During this time EU legislation, regulation and institutions will still be recognised within the UK, so very little will change for businesses.

However, negotiations will continue between the UK and EU on the post-Brexit future, and businesses will have time to fully prepare.

If a revised withdrawal agreement proves impossible then, according to current legislation, the second likely outcome will arise: the UK will exit the EU and thereby create a no-deal Brexit scenario in which case the EU will immediately cease to have oversight in the UK.

There would be immediate requirements on businesses to adapt, affecting everything from importing and exporting, to recruitment and product certification.

Brexit preparedness after a no-deal Brexit

Sage has created a white paper called Preparing for Brexit: Key business actions to consider if the UK leaves the EU without a deal. It explains how Brexit will affect businesses and provides a general overview of key actions, along with specific considerations.

Additionally, it looks in depth at key sectors, such as food and drink, agriculture, pharmaceuticals and chemicals, retail, and professional services, while also providing significant references where businesses can learn more.

The white paper should be considered essential reading for businesses of all sizes but in this article, we briefly summarise the critical areas it discusses in the event of a no-deal Brexit:

Customs and indirect tax such as VAT

Ensuring your supply chain keeps working

Work and the movement of people

Regulatory issues

Finance and money

Legal issues

Systems and data

You should consider this article and the report as starting points for your Brexit preparations, or as a way of enhancing or checking any existing preparations you have in place.

However, there is no substitute for seeking your own professional advice if you are unsure about the specific implications of Brexit on your businesses.

Good advice for all the discussion topics below is to keep up with announcements and publications from both the UK government and EU, as well as regulatory authorities within both the EU and UK.

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Put simply, in the event of a no-deal Brexit, businesses should treat trade (both products and services) between EU countries and the UK in the same way they trade with non-EU countries.

The free movement of goods will no longer apply, and acquisitions and dispatches will be considered imports and exports. As such, businesses will have to start completing customs declaration forms for EU trade.

There will also be non-tariff barriers on trade between the UK and EU, with additional administrative and compliance requirements.

Customs duty (tariffs) will be levied on the import of goods into the UK from the EU and vice versa.

Because the UK will leave the Free Trade Agreement, duty will also be payable on goods imported to the UK from countries like Switzerland.

UK businesses may be required to appoint a fiscal representative in some EU Member States, who will support with the local VAT queries and filing obligations.

Import VAT will apply to goods moving between the EU and the UK, although the UK government intends to introduce postponed import VAT accounting, which will ease cash flow concerns because businesses will not have to pay VAT immediately on goods.

UK businesses will need to make use of the non-Union VAT refund scheme, to obtain VAT refunds where eligible, and the non-Union Mini One Stop Shop.

What to do now

Start by reviewing the HMRC Partnership Pack on preparing for ‘no deal’ changes at the border.

To trade across borders, you will need an Economic Operator Registration and Identification (EORI) number from HMRC, if you do not already have one. An EORI will be granted on application to HMRC.

You’ll need to familiarise yourself with all the data elements required for customs declarations and HMRC provides guidance, including for the new Customs Declaration Service, and the EU has guidance too.

Use the Free UK Trade Tariff look-up tool to see what customs duty (tariffs) will apply on imported goods.

Review the commercial terms of trade (Incoterms) in your contracts relating to delivery of goods to understand who is responsible for customs duties, VAT, and any additional transportation costs, and update your tariff classification (commodity) codes if required.

Are you able to cope with these new requirements? You might need to work with a third party who can complete your declarations for you, alongside helping you to transport your products.

You might need couriers, customs agents, freight forwarders, logistics providers, and so on. If you’ve any of these already in place then talk to them right now about Brexit.

When it comes to VAT specifically, review supply chains and assess the potential VAT implications, such as EU VAT registration and reporting obligations.

Ensure you meet the evidence requirements for zero-rating exports, and review changes that may be needed to obtain VAT certificates.

Preparing for Brexit

Your business needs to put contingency plans in place in case of a no-deal Brexit. Read this white paper for advice to help you start your preparations.

Download your free white paper

Following a no-deal Brexit, new customs formalities will require checks at the border. This will potentially lead to border delays, particularly at roll-on, roll-off ports, in both the UK and the EU.

These blockages could affect all movement of goods, of course, and not just that with EU member states.

Your suppliers will also have to be prepared for additional customs duties, processes and regulatory requirements. If they aren’t then, again, you may face delays when trading with EU countries.

What to do now

Speak to everybody involved:

  • Your suppliers
  • Any couriers/freight forwarders/logistics providers you use to discuss potentially moving to alternate routes/modes of transport
  • Your customers, so you can set their expectations realistically.

Short-term stockpiling might provide a buffer for disruption while new procedures are established. Similarly, forward orders might be appropriate.

You might choose to map your inbound/outbound supply chain of raw materials, intermediate goods and finished products, to identify critical suppliers and find single points of failure.

Finding alternative suppliers is a solution, of course, but you must ensure you can move to them within the required time frame.

Following Brexit of any outcome, EU citizens in the UK will have to apply for settled status to continue living and working in the country.

Any EU citizen coming to the UK to live or work following Brexit might not have the automatic right to do so, although they may be able to take advantage of the European Temporary Leave to Remain scheme.

This should allow them to live, work and study in the UK for up to 36 months.

As for UK nationals working and living in EU countries, their rights will depend on what that EU country decides.

UK travellers might require electronic authorisation to visit EU countries, although it’s unlikely a visa will be required. Existing qualifications might not be recognised between the UK and EU, and there will no system for future qualifications to be recognised.

UK and Irish nationals will be able to travel freely within the Common Travel Area (United Kingdom, Ireland, Isle of Man, and Channel Islands).

What to do now

Businesses whose workforce does (or will) comprise non-UK EU nationals should review the UK government’s advice on Settled Status, including the employers’ toolkit and right to work tool.

Human resources departments will need to create policies for retaining or hiring non-UK EU nationals, and travel policies for UK citizens living, visiting or working within the EU (and vice versa).

Following a no-deal Brexit, members of some regulated industries—such as financial services and pharmaceuticals—will need relevant EU authorisations to supply to the EU market, and additional UK authorisations for the UK market (subject to temporary permissions granted by the UK under a ‘no deal’ scenario).

However, the UK government has announced that it will allow goods that are made and assessed against EU regulatory requirements to be sold in the UK, but this is only for an as of yet unspecified period.

Labelling on products may have to be updated subject to the relevant regulations applying to that product. The UK will have its own conformity mark. Goods subject to export controls will require additional licences.

The mutual recognition principle will no longer apply to UK non-harmonised goods exported to EU countries, so exports will have to comply with the national requirements of that particular EU Member State.

There may be requirements for having a registered address in the EU or appointment of EU-based representatives.

What to do now

Review existing products or services alongside regulations and information provided by the EU and the UK’s no-deal Brexit guidance for your specific sector. If relevant, engage with the relevant notified body. Review the labelling on your products and determine whether they require updates.

Determine if you need an EU representative or registered address.

Watch out for unforeseen complexities beyond your business. If you manufacture in the UK and use an EU-based distributor, for example, they may become importers post-Brexit.

Discuss any issues or questions with relevant other parties to ensure a shared understanding.

Continue to monitor UK government announcements on new conformity markings, and the changing roles of UK regulatory authorities, such as the Health and Safety Executive (HSE) for chemicals, the Food Standards Agency (FSA) for food, and the Medicines and Healthcare products Regulatory Agency (MHRA) for pharmaceuticals.

Dealing with finances needs to be a key consideration with your no-deal Brexit plans
Dealing with finances needs to be a key consideration with your no-deal Brexit plans

Aside from the fact that costs and cash flow changes associated with Brexit may impact working capital, the UK will no longer be subject to EU Withholding Tax treaties.

Any changes to legal entities will have further tax considerations and implications for transfer pricing arrangements.

Fragmentation of financial services may impact costs. There may be challenges to access to capital and existing lines of credit.

There may also be increased exchange rate volatility, and uncertainty may lead to decreased consumer and business confidence. Investor decision-making may be impacted.

What do to now

Assess cash flow and working capital, and engage with your financial services provider/lender to understand any impacts on access to capital. Review any covenants you have with them.

However, be cognisant of wider tax implications of any changes to legal entities, including registrations in new locations.

Review flows of payments of interests, royalties and dividends to assess if there may be withholding tax applied.

Engage with your financial services provider to ensure continuity of services, including use of Single Euro Payments Area (SEPA) for euro payments.

If you have a hedging policy, then review if updates are required to provide increased protection for potential significant and sustained foreign exchange fluctuations, and review currency terms for existing and new contracts.

There may be a potential loss of protection for trademarks and registered community designs, and certain copyrights. Multiple intellectual property filings may be required going forward.

Additionally, access to the EU public procurement market by UK businesses will become more limited.

The structure of firms may give rise to new obligations, such as where businesses have subsidiaries or branches in EU Member States.

What to do now

Review what IP rights are held, and where. For example, EU held trademarks will require a review of genuine use to ensure continuity.

Take a look at refiling requirements with the UK Intellectual Property Office for pending IP applications, along with parallel registrations going forward, including applications that are ‘in-flight’.

Go over commercial contracts to understand which party bears the risk and cost of potential Brexit disruption.

Analyse contracts for service obligations, such as specified time frames for delivery that may be impacted, applicable jurisdiction/legislation, and territorial references (for example, EU-referenced definitions may need to be updated).

Check national EU Member State requirements for any legal presence in the EU, and how this may impact your business (through the European e-Justice Portal, for example).

Consult with the local business registry, or seek local legal advice. For instance, branches in EU Member States with real seat jurisdiction may be reassessed, or there may be additional requirements with respect to nationality of directors in certain EU Member States.

Changes may be required to customer and vendor master data to reflect EU/UK domicile.

Software will need to be fully up to date to reflect compliance and legal changes, such as VAT and product origin tracking.

Cross-border flows of personal data between the UK and EU will be subject to the General Data Protection Regulation (GDPR).

Unless the UK’s data regime is granted an adequacy decision by the European Commission ahead of the UK’s exit from the EU, or the UK and EU enter into a separate legal agreement, flows of personal data will require that appropriate business-level safeguards are in place.

What to do now

Assess what systems updates and configuration changes will be required once the UK leaves the EU—to produce VAT returns, customs declarations, updates to tax codes, refresh of master data, and more.

Review what personal data you hold, where it’s shared (and with whom), and whether you are sharing personal data cross-border, including with any third-party service providers.

Consider the potential impact of Brexit on any major business-as-usual systems change decisions, including demands on potentially limited IT resources.

Assess the appropriate safeguards that would be required in the absence of an adequacy decision or a government-level data protection legal agreement. For example, the GDPR legislation provides model contract clauses and discusses explicit consent.

The UK Information Commissioner’s Office (ICO) has released guidance, including an interactive self-assessment tool.

Conclusion

A question asked by many businesses is when they should start preparing for Brexit and, in the light of recent developments, the answer is right now.

With so few working days before a potential no-deal Brexit on 29 March 2019, it’s easy to feel overwhelmed with the sheer amount of tasks. However, there’s no avoiding it. No amount of preparation is going to be too much.

Consider no-deal Brexit preparedness an important part of your planning process and, as such, remember the key components of any such exercise:

  1. Prioritise what’s vital—the things without which your business can’t continue.
  2. Admit you can’t resolve all contingencies, and that some otherwise important areas might have to be underserved until resources are available. Some sacrifices might have to be made.
  3. Make plans and adapt them as time goes on and new information comes to light.
  4. Get help where needed, including professional support if required.
  5. Stay abreast of developments. Stay informed and identify reliable information sources, while avoiding becoming bogged down in rumours or opinions.

Brexit may well be one of the most trying periods for any business in recent decades but there is always light at the end of the tunnel and, once we’re over the hump, there may be fresh opportunities and room for growth. Keeping an eye on this may help you stay on track.

Preparing for Brexit

Your business needs to put contingency plans in place in case of a no-deal Brexit. Read this white paper for advice to help you start your preparations.

Download your free white paper

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