Preparing for a No-Deal Brexit – What Can You Do For Your Business?
Updated: Oct 13, 2019
As the saying goes, if you fail to plan, plan to fail. And since prime minister Boris Johnson seems to be heading towards a no-deal Brexit, how can UK SMEs prepare for it?
They say that if you ask two economists the same question, you’ll receive three answers. Yet when it comes to Brexit, there seem to be no clear-cut answers from anyone.
With another Brexit deadline approaching, no one is any the wiser about whether there will be a deal with the EU, or whether the UK will crash out without one. Deal or no deal, if you do business with the EU, there could be a lot of disruption to your business over the coming weeks and months, even years.
Depending on what your business relationship is with the EU, there are many things to think about. Do you need to pre-purchase goods to avoid the risk of border delays after Brexit? How might new tariffs affect your pricing and profit? How should you change your contracts to accommodate any changes that follow Brexit? What about if you send people to EU countries, or if you have any EU nationals working for you in the UK?
Let’s take a look at a few things you should be thinking about as you try to prepare for a post-Brexit world. These considerations, in particular, reflect a no-deal Brexit, but they may also be relevant in other outcomes.
1. Customs Duties and Tariffs
HMRC estimates that there are 240,000 UK businesses that trade only with the EU. HMRC has issued instructions to every business that trades between the UK and the ‘EU-27’, or with the rest of the world, to prepare for a no-deal Brexit. And if that happens, every business will need to comply with the new customs regulations.
So if new duties or tariffs are imposed on products relevant to your business, make sure you have discussed and agreed with your trading partners how they will affect payment terms between you.
Exporters from the UK to the EU
For UK exporters, the worst-case scenario would be the UK leaving the EU without any trade deal, and then all exports to the remaining EU countries becoming subject to tariffs under the World Trade Organisation (WTO) rules.
Nearly 60% of UK exports go to non-EU countries and might already be subject to tariffs or quotas depending on what arrangements the EU customs union already has with those non-EU countries. Many UK exporters will therefore already be quite familiar with customs procedures.
But for UK exporters who only trade with EU countries, any new customs regulations will be completely new. For those businesses, a no-deal Brexit could cause significant headaches, both during the Brexit transition period and also in the longer term.
UK Importers from the EU
For imports to the UK, the government has tried to minimise the impact of a no-deal Brexit by announcing temporary rates of customs duties (tariffs) that would apply.
British businesses would not pay customs duties on the majority of goods when importing into the UK if we leave the European Union without a deal, and 87% of total imports to the UK by value would be eligible for tariff-free access. You can read more about this here.
The Government will automatically enrol companies with customs identification they need to keep trading with the EU should a no-deal Brexit happen.
HMRC has allocated more than 88,000 firms with an Economic Operator Registration and Identification (EORI) number over the past few weeks – double the existing number. These unique identifiers are needed to track companies trading with the EU and collect duties.
So far, 72,000 companies have EORI numbers. A total of 245,000 firms would need one an EORI number in the event the UK leaves the EU without a deal.
Non-VAT registered businesses will still have to apply manually.
2. Talk to your EU counterparts about a Brexit Clause
One important way to prepare for the uncertainty of Brexit is to talk to your suppliers and customers as soon as possible and think about including a ‘Brexit Clause’ into any new contracts, and also one for your existing suppliers and customers in the event of a no-deal Brexit.
How does a Brexit Clause work?
A Brexit Clause sets out what will happen in various Brexit outcomes. For example, a UK importer of products may agree a cost-sharing mechanism with its EU supplier, depending on what happens.
The agreement may state, for example, that if new laws or regulations come in within three years as a direct result of Brexit, the two companies will split the difference between them. But if the extra cost for either side is more than, say, £100,000 in any year, the party that suffers the cost has the right to terminate the contract. This might also cover significant pricing changes due to FX movements post-Brexit.
If your contracts require you to supply people from the UK to Europe (or vice versa), what will happen if new visa requirements are introduced that make this difficult? And if you already employ citizens from other EU states in the UK, how might their status be affected if there is a change in immigration law?
Existing EU nationals you employ in the UK will likely need to apply for settled status. It’s also important to plan for the immigration status of new arrivals to the UK.
Depending on how many people it affects, you may also want to do a full audit of each EU national working for you to ensure compliance with the relevant immigration regulations. And businesses that are reliant on EU workers might need to consider how to recruit workers in the future.
4. Currency/FX risk
Currency and FX volatility is something that any international business faces on a daily basis. Be sure to consider the added impact of a no-deal Brexit in any deals and contracts you make.
It’s also important to build in a potential safety valve or walk-away clause into your contracts, just in case the value of Sterling falls far enough to severely impact your bottom line (as imports become more expensive).
5. Product Standards
If EU standards differ from those in the UK, how might this affect manufactured products or the supply of services post-Brexit? And how will you decide whether it’s the UK or EU standards that will apply under your existing and future contracts?
It’s important to check your documentation is up to date for the different standards, as well as all the certification and labelling requirements that apply to your products. These ‘technical’ barriers can create even bigger problems than tariffs to your ability to conduct business.
In the event of a no-deal Brexit, it’s possible that UK assessment and certification arrangements may cease to be recognised in the EU. Make sure you familiarise yourself with the relevant government guidance.
The British Standards Institute (BSI) is a member of the European Single Standards system, and has announced that it will remain a member of the European standards bodies CEN and CENELEC post-Brexit. In fact, these bodies are not EU agencies and their membership is broader than the EU. BSI has also published guidance regarding the continuity of their certification arrangements, which you can read about here.
Anyone who has registered an EU trademark has protection throughout the 28 member states. If we leave, will that EU trademark still provide protection in the UK?
7. Financial Planning and VAT
Consider how you would finance a potential increase in working capital. You might need it: more complex port procedures could mean businesses need to carry more inventory, tying up additional working capital.
In the event of a no-deal Brexit, HMRC has pledged to reintroduce ‘postponed accounting’ for duty and VAT. In practice, what this means is that VAT and duties due on imports from ‘third countries’ (which will include the European customs union if no deal is reached) can be settled on a company’s VAT return instead of immediately at the port of entry.
8. Personal Data
If the UK leaves the EU without a deal, it will become a ‘third country’. This means that UK businesses that process or transfer any personal data of EU citizens from the EU to the UK may need to take action to continue the free flow of data from the EU to the UK.
Preparing for Brexit – The Final Word
It’s difficult to prepare for something when the final outcome is so unclear. But we at least have a good idea of what things are likely to be impacted by a no-deal Brexit.
Most businesses should already be making contingency plans for a worst-case outcome. If you haven’t started planning, you probably should be. Otherwise, you might be in for a shock within a few weeks.
And if you don’t know where to start planning for a post-Brexit world, get in touch. We’d be happy to give you our thoughts.
MJH Accountancy has offices in both the UK and Ireland, so we are perfectly placed to advise businesses with operations in both countries. If you are a UK-based business with some operations in Ireland or other EU member states, we can help to safeguard your business against the effects of Brexit. Get in touch on the contact form below if you would like to speak to us and get more information about dealing with EU businesses post-Brexit.