Is your supply chain ready for Brexit?
Global supply chains have come under renewed pressure during the COVID-19 pandemic. Brexit presents another vulnerability that must be managed. While the reach of many values chains is global, a large share of operational networks tend to be regional.
As the UK reaches the end of its transition period with the EU, any trade resistance could significantly impact UK supply chains, to the point of changing the viability of some production activity in the UK and supplier agreements across Europe.
The additional costs and time at the border is likely to encourage UK and EU businesses to rethink their supply chains - especially those involving perishable goods - even in the absence of explicit tariff rates.
Below we set out the practical actions businesses can react to as the transition period approaches, however businesses should be cautious that decisions made today have lasting impact tomorrow. Business will need to ensure their operational networks and supplier agreements remain resilient post 1 Jan 2021 when making these short-term changes:
1. Make cross border cash payments before the exit date
If withholding tax (WHT) is likely to be payable on cross-border payments within your group after Brexit, consider bringing forward dividend, loan interest/capital payments and royalty payments to benefit from existing rules. Check out the WHT for different EU countries using our online tool.
2. Make VAT reclaims on expenses under 8th directive
Tax authorities are not keen on repaying VAT but there is an established online mechanism for reclaiming VAT on business expenses you incur within the EU. It is likely that UK businesses will only be able to use a paper-based 13th Directive process which means refunds can take much longer. Therefore, make claims now to limit the hit to your cashflow.
3. Know your customs duty rates
Confirm what duty tariff you will be paying on your trading goods: some tariff rates will go up but others will go down under a temporary new UK tariff. As well as planning for the impact on you imports, don’t forget that UK businesses currently benefit from the EU’s trade agreements with many countries so your exports may become more expensive to some customers.
4. Protect your cashflow from customs duty and import VAT
Customs simplifications such as Inward Processing Relief, Customs Warehousing and a Duty Deferral Account and can help protect your cashflow from short term customs duty and VAT charges so putting them in place now could save you time and money.
5. Ensure you will get the customs paperwork right
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. The government has made grants of up to 100% of the cost of training for employees on the new customs arrangements, up to a limit of £1,500 for each course.
6. Check your data transfer and protection obligations
Check what restrictions there will be on transferring data across borders and put new policies in place to prevent potentially expensive breaches of rules in EU countries. You may need to change your contract terms to comply. Read the government guidance.
7. Adjust your contract terms
Where your post-Brexit trade will incur additional duty, administrative costs for transport or other costs, you should review your terms of businesses with customers. Whether or not you choose to absorb these costs, it is vital to communicate any changes to your customers so that there are no unpleasant surprises.
8. Day One trading in the EU
Check that you have the licences/permits/approvals you need in all the other EU states in which you operate so that you can carry on trading as you do now. For example, are local VAT registrations needed? Should your product labelling change? Are you set up to make any new tariff payments needed? HMRC’s ‘Get ready for Brexit’ information service provides a wide range of information on the licences you may need.
9. Secure your staff here and in the EU
Check if your UK staff that are based in the EU will be able to work – will they need a local work visa? For EU staff based in the UK, check that they have applied for settled status or pre-settled status in the UK and understand the recently announced transitional arrangements.
10. Stock up to help manage transport delays
There could be delays at UK borders. If you import or export – getting advance supplies in place now will ensure that you can maintain sales.