Have you prepared for a ‘no-deal’ Brexit?
The continuing stalemate in the UK-EU negotiations and the ongoing political debate have created uncertainty, as to the exact form of trading landscape we will face post Brexit. This has led many commentators to suggest that there is a now a very real possibility that the UK will leave the EU on 29 March 2019 as per Article 50 with no agreement at all - the so-called‘no-deal’ Brexit. This makes it an urgent priority for UK businesses to prepare for such an outcome.
“Whatever your views on Brexit, it is going to happen and preparing for all eventualities is just good business sense: if you haven’t started your preparations yet, you may end up losing out to competitors who have done their groundwork. It is not too late to start your preparations, but clients wait much longer.” Stuart Lisle
Preparing for a 'no-deal' Brexit
Businesses should be urgently preparing for the possibility of a no-deal Brexit - these are the most pressing issues you should be addressing:
Authorised Economic Operator (AEO) accreditation makes import and export processes simpler and faster. This will become critical in the case of a hard Brexit, especially for retailers and manufacturers with complex supply chains.
HMRC is already very busy with increasing numbers of applications, and the process can take up to six months. You should apply immediately in order to minimise the risk of disruption after Brexit.
The application process is not straightforward. We recommend seeking help from your advisors to ensure that the process runs smoothly and quickly.
Read more on the benefits of AEO accredited status, especially for retailers and manufacturers
You need to check whether you will be required to complete VAT registration in every EU country where you sell goods.
Many EU countries have different VAT registration requirements for EU and non-EU businesses. After Brexit, UK businesses will have to fulfil the non-EU registration requirements.
Even if you are already VAT registered within the EU, you will need to double-check that the local compliance requirements. If requirements do change, you will need to reregister. The VAT simplification for movement of goods within the EU, known as ‘triangulation’, may also end.
Read more on the VAT implications of a ‘no-deal’ Brexit.
Many businesses will already have been examining their supply chains and the impact of “friction” when importing and exporting goods. However, has the review been deep enough? Questions to consider are, how can delays when importing or exporting be mitigated? Do we need to build inventories? If our inventory includes seasonal or perishable items what risks of obsolescence might arise from overstocking? How will increased inventories and working capital requirements be funded? Do we have the facilities? What about the terms of supply contracts, for example, which party bears the costs of delays, price changes, foreign exchange risks and additional duty? Are there risks of delay to vital services, for example spare parts and maintenance services if these are provided from other EU countries? The answers to these questions may not be easy and there may be no “quick fixes” but the important first step is to consider them.
Read more on preparing your supply chain for potential free trade agreements
You need to understand the ‘economic origin’ of any products and components you use. You must know where they are manufactured. This requires a detailed analysis.
Under any future UK/EU Free Trade Agreement, understanding of the economic origin of goods will be key to determining if a UK business could benefit from zero tariffs at import. This benefit is normally only available where rules on the ‘economic origin relating to the economic added value of the goods can be met.
If there is no trade agreement, UK businesses will need to understand ‘economic origin’ to ensure they can manage their duty costs and be in a position to apply for any reliefs available.
Establishing a subsidiary company in the EU before Brexit could deliver significant regulatory advantages.
For example, HM Treasury may be planning to grant EU financial services businesses temporary access to UK markets to help protect London as a financial services hub but there is no guarantee that EU countries will do the same.
The ‘third country’ status, envisaged in the Government’s July 2018 white paper may be agreed. However, a bespoke version giving UK firms more access to the EU markets may be difficult to negotiate.
Many firms, particularly in financial services and other regulated sectors, have already put plans in place to establish a local presence in EU markets. It is not too late for your business follow the same approach. At this stage, the acquisition of a local business might be the quickest option.
The Migration Advisory Committee has published its final report on EEA migration. The report recommendations will benefit and look to secure EU skilled nationals with no special rules aimed at the lower skilled workforce. If adopted, the recommendations will have major implications for many employers, especially in those sectors employing a high share of EU nationals such as hospitality, healthcare, food production, retail and construction.
Will your group structure still be fit for purpose after Brexit?
Your board may well be grappling with such issues anyway following the US business tax reforms and the ongoing changes sparked by the OECD’s Base Erosion and Profit Shifting project.
The UK will cease to benefit from the EU parent subsidiary directive. Withholding taxes may be due on dividends and interest flows between the UK and group members in the EU. Only 17 of the 27 tax treaties between the UK and the other EU member states provide for zero withholding taxes. It may be possible to restructure the group so that its subsidiaries in EU member states and income flows back to the UK continue to benefit for zero withholding taxes.
Read more about the workforce planning requirements of a ‘no-deal’ Brexi
All businesses rely on forecasts for important management decisions – for example, budgets, valuations, impairment reviews, tax planning, going concern assessments. Other than very short term forecasts, all forecasts will implicitly or explicitly include assumptions about Brexit. These might be a default assumption that “nothing will change”. Regardless of what the assumptions are, they should be reviewed carefully to consider the impact of Brexit. Are they still realistic? Are they prudent? What would be the consequences if the assumptions were materially incorrect? What management decisions are being made based on the current assumptions? Reviewing forecasts and preparing sensitivity analyses (including worst case scenarios) may highlight areas where further actions and contingency planning is needed.
Having an ‘EU-approved’ data protection framework is essential for the free movement of personal identifiable information between EU and non-EU countries.
The current UK Data Protection Act (2018) does not meet EU standards for an adequacy decision. Therefore on exit from the union (and without an EU-approved agreement for data protection standards in the UK) UK firms will still be able to send personal identifiable information to partners within the EU but those partners will not be able to send personal data back to the UK without implementing additional safeguards.
Read more about the various safeguards and mechanisms you will needed to ensure the continued transfer of personal identifiable data, in the event of a ‘no-deal’ Brexit.
Businesses should take the necessary steps to ensure compliance with the EU’s import/export prohibitions and restrictions. EU rules restrict the import and export of certain foods to and from third countries for health and safety reasons. Certain commodities such as live animals, plant products and waste will require specific permits or notifications.
In a 'no-deal' Brexit scenario these could come into immediate effect at 11.00pm on 29 March 2019, so UK businesses should plan contingencies.