Preparing for Brexit with three weeks to go

  1. Alarm clock for Brexit.
    James Martini

    James Martini UKBF Newcomer

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    Less than a month remains until the UK officially leaves the EU single market and customs union on 1 January 2021 and only around one in nine small businesses feel adequately prepared.

    The Government has cranked up its countdown to Brexit Day with the message ‘time is running out’, possibly one of the last slogans devised by the PM’s former chief aide and Vote Leave architect, Dominic Cummings. 

    At the time of writing, no formal agreement between the UK and the EU has been agreed and, like most business negotiations, it would be no surprise if a deal was to be struck a minute before midnight on New Year’s Eve. 

    From 1 January 2021, however, new customs and tax rules will affect UK businesses that either import or export goods to the EU, regardless of a free-trade deal being agreed. 

    The Government warns that “customs declarations will be complicated and time-consuming” from that point on, putting the onus on business owners who trade with the EU to get their houses in order.

    Much of the official guidance is well hidden and, of course, subject to future change – but many UK firms that trade with the EU simply cannot afford to wait for a deal to be agreed and should take action now if they haven’t already done so. 

    Supply chains & cashflow

    Supply chains are likely to be heavily impacted in the new year. It might be wise to check to see how they integrate with the common market and the EU, and how any suppliers or distributors are preparing for Brexit. 

    Supply chain disruption will probably have a domino effect on cashflow for UK businesses that trade with the EU, and reviewing any forecasts to reflect this – and the scheduled end of government support measures at the end of Q1 2021 or possibly earlier – should be time well spent. 

    It might also be worth considering how this red tape could affect customers. If businesses within a supply chain are putting their prices up by 10%, businesses need to follow suit and pass that onto the consumer resulting in higher prices at the checkout.

    Trading requirements for exporters

    Most firms that export large quantities of goods use a freight agent or customs agent to trade with businesses in EU nations. For those that don’t or who are new to exporting, certain tasks need to be completed.

    Businesses need to check if they need to apply for an exports licence or have to follow special rules to export restricted goods to the EU from 1 January 2021 onwards. 

    From this point, exporters either need to make customs declarations when exporting goods – not just to the EU, to the rest of the world – or use a courier or customs agent to do this on their behalf. 

    A UK EORI number – which starts with GB – will be needed to get goods in and out of the country, while a separate EU EORI number might be required if a business has a branch in the EU and it imports goods into that country. 

    Preparing for VAT changes

    When the UK leaves the EU on 31 December 2020, we also exit the EU VAT regime. What that means is the UK has complete control over its reduced VAT rates, which are currently restricted by the EU VAT directive. But, as with anything VAT-related, things are never as simple as they might seem. 

    For businesses that supply goods to the EU, it will be critical to record accurate data on any customs declarations for VAT purposes. On exports to the EU, most goods will be zero-rated for VAT from 1 January 2021. 

    However, import VAT will arise in the EU country where the exports end up. That’s prompted some business owners to question whether they need to register for VAT in those nations, which would be a costly process.

    UKBF poster rlellie14 said: “Recently European customers are saying they will only deal with us if we pay their duties/VAT etc.”

    It’s likely that some EU nations will require UK businesses to register for EU VAT while others might not. Worryingly, with the big day only weeks away, this kind of thing has yet to be fully worked out.

    At any rate, in this situation, customers can recover any import VAT applied to the purchases.

    Funding for exports

    Earlier this week, the Government announced that exporters can apply for larger loans from the UK’s five high street banks and partially backed by a state guarantee. 

    The loans will see the Government provide an 80% guarantee on money advanced by HSBC, Lloyds, NatWest, Santander and Barclays to support general exporting costs post-Brexit. 

    The banks usually have limited capacity to lend to firms that require export finance, but exports minister Graham Stuart expects the move “to make a huge difference” and boost exporters’ optimism. Whether that’s borne out, only time will tell.