Boris Johnson insists he won’t be extending the deadline past January 1 and Michel Barnier says there won’t be time to ratify a trade agreement if it’s not done by October.
But for business, next year’s deals are already being planned and they cannot afford to gamble on a Brexit trade deal at the last minute.
We asked professional services experts what are the steps they’re advising clients to take now, in preparation for January 1.
If no deal is agreed, the UK will “crash out” of the single market and customs union and pay tariffs on World Trade Organisation terms. That means setting a list of charges to apply to products from all countries the UK does not have a specific trade deal with. That means changes to the way Scottish businesses deal with EU members, with whom the UK does around 46% of its trade.
Gordon Downie, co-chair of the Shepherd and Wedderburn Brexit Advisers group: “If a deal is not reached at the end of the transition period then trade between the UK and EU will take place on World Trade Organisation terms, resulting in duties and customs procedural requirements applying to imports and exports between the UK and the remaining EU member states.
“UK businesses relying on EU trade as part of a supply chain or sales channel are likely to be impacted both practically and financially, and affected businesses should consider taking legal advice on the processes and requirements that will apply from 1 January 2021.”
The changes involve not just tariffs but getting paperwork such as vehicle permits in order, if you are transporting your own goods to EU markets.
Chiene + Tait director and VAT expert Iain Masterton said: “While it’s not impossible for the UK and EU to strike a late trade agreement, the prospect of a No Deal Brexit is increasing by the day. I would strongly advise UK businesses which trade with suppliers and customers in EU member states to prepare now for the new regime.
“This includes making preparations to adopt different customs procedures and ensure they have international driving permits in place for any vehicles travelling outside the UK from the end of 2020.”
Uncertainty still surrounds Northern Ireland. Customs tariffs should be paid on goods sent from mainland Britain if they are likely to be exported on to or become components of goods to be exported to the EU. And if Northern Ireland remains part of a customs union with its southern neighbour, that creates a mighty grey area.
Alistair Brown, indirect taxes director at Anderson Anderson Brown (AAB), said: “Even allowing for the staggered introduction of import requirements; clients are concerned about the additional administrative burden from the submission of customs documentation when goods are brought into the UK next year. In particular, where trade is via Northern Ireland, the additional uncertainty surrounding the Northern Ireland Protocol is making planning difficult.”
Thousands of small businesses use Amazon to sell their wares all over the world, so customs tariffs with the EU would create a new layer of red tape and level of pricing. Amazon has decided to split its UK Fulfilment by Amazon (FBA) operations from those that apply in the rest of the EU, meaning traders would be running one website for the UK and one for the rest of Europe.
Helen Brown, international tax director at Anderson Anderson Brown, said: “Amazon has suggested that businesses should consider splitting inventory between separate fulfilment centres in the UK and the EU. This brings the additional cost of operating two sites, the difficulty of ensuring sufficient stock in each and the administrative cost of moving stock between the sites.”
It is not just physical goods and services that will be affected on January 1. Businesses in the UK and their partners abroad share information about customers and under European Economic Area rules, they will have to prove the recipient of the data will look after it properly.
Gordon Downie, of Shepherd and Wedderburn said: “From a data protection perspective, a key issue will be ensuring that the flow of personal data between the UK and Europe remains compliant. Under GDPR, personal data cannot be transferred outside the EEA unless ‘adequate safeguards’ have been implemented.
“Additionally, certain organisations that are not based within the EU but process the personal data of individuals in the EU must appoint an EU-based representative. Organisations will need to assess their data flows and consider how these requirements may affect them.”
Bidding for contracts
Businesses are preparing bids for contracts in the EU for way beyond the exit date of January 1, 2021, but without knowing what customs duties, social security costs or other other taxes they will have to factor in. That leaves them with the choice of submitting a conservative, potentially uncompetitive bid, or underbidding and leaving themselves at risk of bearing the extra costs
Alistair Brown and Helen Brown said: “Clients have been particularly concerned about the uncertainty surrounding the availability of existing double tax treaties and social security agreements post January 1, 2021.
“They are unable to quantify the corporation tax and social security costs of working in EU jurisdictions without knowing whether existing double tax treaties, directives and agreements will remain in place or what the renegotiated position will be.
“This leaves businesses with the choice of taking a prudent approach to the tax costs which results in an uncompetitive bid or exposing themselves to unexpected tax costs. It is therefore important that businesses have the proper clauses and tax protections in their contracts and terms and conditions (both with their customers and globally mobile employees) to protect them from unexpected tax liabilities.”
There are existing provisions where goods enter the UK from elsewhere for maintenance, or en route to another destination outside the UK. This happens for example, in the case of oil & gas machinery which is serviced by Scottish companies and may end up being used in the Norwegian sector of the North Sea. This will make it more important to ensure paperwork is in order, to ensure tax can be deferred.
Iain Masterton of Chiene + Tait said: “Companies actively importing or exporting via the EU should also consider taking on a customs intermediary to help them manage the potential of new bureaucratic requirements when submitting the required declarations, such as customs information, to HMRC. While this can be managed internally, using an intermediary can significantly simplify the process and allow companies to focus on their core business.
“These companies are also likely to benefit from having a duty deferment account which enables charges, such as customs duty, to be paid on a monthly basis rather than on each individual consignment. The Government is going to allow businesses to account for and recover import VAT on their VAT returns which will be a useful cash flow saving measure for all imports.”
Nicola Alexander, director of Bethan Customs Consultancy, said firms can apply for relief on duties for goods for Inward Processing – goods being imported temporarily for processing or repair; to a designated Customs Warehouse – where goods can be stored with the suspension of duties; and Outward Processing – on goods being temporarily exported for repair or further processing to a finished product.
Alexander said: “Where previously goods could move freely between member states without the requirement to pay duties, classification is of utmost importance to ensure the goods are classified correctly and subsequently attract the correct rate of duty applicable, where no Free Trade Agreements are in place. Contractual obligations should also be fully reviewed and considered with regards to responsibility for any tax/ duty obligations.”
Hiring from the EU
Covid-19 has resulted in a wave of job losses in some sectors which rely heavily on workers from the EU, such as hospitality. But in others, such the tech sector and life sciences, demand for specific skills remains high and businesses should be in a good position to make key hires rather than wait until the situation arises, says Gordon Downie.
He added: “We are currently supporting a number of businesses to either apply for a sponsor licence or review their existing sponsor licence so they can be Brexit-ready for the new recruitment landscape. The new immigration system only allows for the employment of ‘skilled workers’, as calls for a low-skilled immigration route have fallen away in light of the impact of Covid-19 on the UK employment market.
“Businesses that apply for a sponsor licence now could reap the benefits in terms of recruiting skilled staff post-Brexit, as having a licence in place can save six to eight weeks of the recruitment process. Further, those that apply now are likely to avoid getting caught in a log-jam later in the year.”