Brexit: What are you waiting for?
Tuesday, 27 October 2020
With just a few weeks to go until the 31 December 2020 Brexit deadline, businesses appear to be in two categories. There are those businesses who’ve had a Brexit plan for what feels like forever and are constantly fine-tuning it. Then there are those businesses which are holding off before making any detailed Brexit plans. So, the question for the businesses holding off is… what are you waiting for?
Whilst there are still a range of potential Brexit deals on the table (Brexit latest mentions no deal, Canada deal and Australia deal), what steps to prepare for Brexit can UK businesses be taking now which are simple and cost effective?
Where to start?
The first step to prepare for Brexit is to look at your supply chain. Where do your goods come from and where do they go to? This will help you identify the impact Brexit is likely to have.
No direct involvement with the EU, so nothing to worry about?
If, having reviewed the supply chain, there are no immediate cross-border transactions, then you can breathe a little easier knowing there is no immediate direct impact from Brexit.
However, is that the case with your major suppliers and customers? For example, if you’re a manufacturing business purchasing raw materials from UK suppliers, there’s no direct, immediate upstream impact on your business from Brexit. However, if your supplier is importing all of the raw material from the continent, it would be useful to know if they’ve taken steps to mitigate the impact of Brexit on their supply chain or if, come 1 January, you’re going to be facing shortages or cost increases.
Similarly, if your main customer sells all of its goods to EU customers and hasn’t done any Brexit planning, they may not have a customer base if EU tariffs price them out of the local markets, resulting in a lack of funds to pay bills and the loss of a significant part of your business.
Finding this out will cost little, but could have a big impact.
Importing from the EU
If you directly import goods from the EU, have you considered what duty rates may apply from 1 January 2021? Duty is an additional, irrecoverable cost to businesses and will need to be factored into budgets and pricing.
Who will be responsible for completing customs declarations, which will be required for movements of goods between the EU and UK from 1 January? If in-house, then training may be required or possibly even an extra employee to take on the administrative burden. If outsourcing, there will be an additional cost to the business.
For cashflow purposes, it’s also important to understand when and how import VAT and duty will be paid. The UK Government is taking steps to mitigate the impact of Brexit on UK businesses, so understanding what can be done to lessen the impact of taxes on cashflow should prevent unpleasant surprises in January.
Exporting to the EU
If you export goods to the EU, have you considered whether you’ll need a local subsidiary, a local VAT registration, or a local fiscal representative in the countries you sell to?
In some cases, these can be avoided, but it’s unlikely to be as simple as changing the shipping terms and placing the onus on the customer to deal with the import requirements and costs (there may well be a similar customs duty cost for goods going to the EU as mentioned above for goods coming to the UK).
In addition, some sectors (particularly food businesses) require an EU business address on the packaging. Understanding and dealing with these issues will ensure compliance with EU law and avoid needing to reprint all of your packaging.
What to do now?
Once you know what the potential risks and costs of Brexit are, you can then consider where the opportunities are.
- If you’re bringing goods into the UK and then shipping them out again, there may be duty reliefs available.
- If your teams need training to handle customs declarations, there may be grant funding available.
- If there are logistical issues making supplies to a certain EU member state, is there another way you could operate, which may also open up new markets?
It won’t be possible to exploit the opportunities without first understanding your supply chain and potential risks.
Which camp are you in?
Whilst change can be daunting, particularly after the year we’ve had, if you were to ask, “What’s the worst that could happen?” would the answer be that you find out in mid-January that you can’t source materials or there was an unexpected price hike? Or that your main customer has ceased to trade, owing you lots of money? Or that you have an unexpected tax bill in an overseas territory you didn’t even know you had to register in?
However, with a few weeks’ Brexit planning, you can foresee additional costs and manage customer expectations while ensuring these are passed on. You may identify a new way of selling to the continent which opens new markets. Even if you spend some time planning for a scenario which never happens, it will be worth it just to make sure you don’t get caught out. If the latter is the worst that happens come the Brexit deadline, then I think we will all be grateful.
So, the questions remains, what are you waiting for?
If you have any concerns or need help preparing your business for Brexit, please get in touch with your usual Larking Gowen contact. You can find contact details on the Our People section of the Larking Gowen website. Alternatively, call 0330 024 0888 or email firstname.lastname@example.org.