The UK formally left the European Union on 31st January 2020. Here is a short summary of the situation at present:
- The UK is now in a transition period at least until December 31st 2020.
- During this time the UK will remain aligned to the EU – essentially, nothing will change.
- The UK and EU are currently in talks regarding the future trading relationship.
- The UK wants to secure a “comprehensive free trade deal” in this time but may leave on different terms, such as a no-deal scenario.
Below is a number of areas that companies need to action now in preparing for Brexit:
1. Explore the option of an off shore address and distribution centre
Goods will become liable for import duties when they hit UK soil. For a number of KJG clients we have set up subsidiaries of UK companies in the EU to distribute items directly within the EU to avoid these duties, effectively keeping current tariff charges.
For more information on this company formation speak to your KJG contact, call 0161 832 6221, or email [email protected].
2. Build corporate customs infrastructure
If the UK leaves the single market, British companies will need to fill in customs declarations for all goods crossing the EU border. This requires updates to operational software, which could have long lead times. The EU requires eight copies of each customs declaration (future UK requirements are not yet known).
There are also charges associated with customs clearance documents which will add to costs.
Companies wanting to trade across borders will also need to ensure internal systems communicate with both the EU’s customs technology and a new UK system. HMRC has estimated the number of customs declarations will rise from 55m to 255m annually.
3. Obtain Authorised Economic Operator (AEO) status
Currently, only 606 British companies are registered as a “trusted trader” of goods across external EU borders. Having AEO status allows faster clearance at borders if a company’s procedures are deemed as compliant by authorities in both countries.
Achieving AEO status is a time-consuming exercise. The process involves filling out complex forms and can easily take a year.
4. Decide whether to make use of an EU free-trade agreement
A bilateral trade agreement can save costs on tariffs but will increase bureaucracy because businesses must prove each good is sufficiently British to qualify for zero rates.
The trade-weighted EU average tariff is 2.3% for non-agricultural goods, some exporters may decide to pay rather than face compliance costs, so companies will need to take a strategic decision after auditing their processes.
Even companies ready for Brexit may be disrupted if their suppliers are not. Assessing such risks will be an intense information-gathering exercise.
According to the Chartered Institute of Procurement and Supply, around 63% of EU companies are already seeking to get rid of UK suppliers and 40% of UK companies are seeking domestic suppliers.
6. Audit all international contracts
Some intra-EU contracts will not include incoterms. Incoterms is the legal provisions for importing and exporting that define who is responsible for shipping goods across borders. This is very important for VAT. Businesses may find their current contracts lack the details to deal with a new customs border between the UK and EU.
7. Develop a contingency plan
There is no guarantee that border procedures will operate smoothly after Brexit, and companies will need a contingency plan in case systems fail.
With the port of Dover being a potential bottleneck, companies will need to consider alternative logistical arrangements. Some may want to invest in larger warehousing for stock holding, demand for warehousing is already high which will push pricing even higher.
8. Know your employees’ nationalities
The EU withdrawal bill will transpose most EU employment regulations into UK law and the Brexit divorce negotiations seek to guarantee the rights of EU nationals already in the UK. However, companies will need to understand the rights and status of all of their EU workers to ensure they are employing them legally.
9. Intellectual property
Intellectual property protection, such as patents, trademarks, registered designs and copyright could all change. The British government’s Brexit IP website says that such protections will still apply in the EU after Brexit, but it says it cannot give the same assurances for the UK.
Companies need to act now to ensure they can still protect their existing rights in the UK after it leaves the EU, but the process is made much more difficult because the Government has yet to develop an alternative plan.