Brexit: are you prepared?

Lyndon Firth, Tax Partner and Head of Indirect Tax Services in the North

It’s been a long and drawn-out separation from the European Union but, as the 11-month transition period draws to a close, the UK will finally leave the EU’s Customs Union and Single Market. Whether a new free trade deal with the EU is agreed and ratified by 31 December remains to be seen.

As the political debate continues on proposed legislation that gives the Government power to override parts of the Withdrawal Agreement with the EU, particularly if future trade deal negotiations break down, businesses need to prepare themselves for life outside of the EU from 2021. Wait and see appears to no longer be an option.

Certain policy easements put in place for a potential no deal Brexit will not be reintroduced, because the Government’s view is that businesses have had time to prepare. So, what are the immediate actions businesses need to take in readiness of Brexit? Whatever the size of your business, you should prepare your supply chains, workforce, VAT registrations, processes and cashflow. From an indirect tax point of view this includes:

Customs training
In February, the Government confirmed that, at the end of the Brexit transition period, UK sales and purchases with EU counterparts will become exports and imports as with the rest of the world. EU and UK traders will therefore have to submit Customs declarations and will be liable to checks on goods. It is helpful that the deadline for businesses to apply for Customs support grant funding from the Government is extended to 30 June 2021 and BDO is an accredited provider for this training; see the following link for details.

Knowing your customs duty rates
Confirm what duty tariff you will be paying on imported goods. Some tariff rates will go up, but others will go down under the new UK Global tariffs.

Safeguarding your supply chain
Customs simplifications such as Customs Warehousing and Inward Processing Relief can help protect your cashflow from customs duty and VAT charges. Consider applying for Authorised Economic Operator (AEO) status and review your country of origin position, commodity codes and customs values. Consider also the potential loss of call-off stock and consignment stock simplifications which may add to compliance costs and obligations.

Ensuring your systems are ready
Check that your systems are set up to handle the new VAT requirements and customs arrangements and make sure your teams have been trained on what they need to do. For instance, Postponed VAT Accounting will involve accounting for import VAT on the VAT return (for both EU and rest of the world purchases) rather than paying it at the port or airport of entry to the UK.

Adjusting your contract terms
Where your post-Brexit trade will incur additional duty, administrative costs for transport or other costs, you should review your terms of businesses with customers. Will you or your customer become liable for importation and VAT registration obligations when EU acquisitions become imports?

Considering an EU entity
Many businesses are setting up companies, particularly in Republic of Ireland and the Netherlands to ensure that they have a presence in the EU and to take advantage of EU arrangements. This obviously comes with taxation consequences to be considered.

Making VAT reclaims on EU expenses
There is an established online mechanism for reclaiming VAT on business expenses you incur within the EU. It is likely that UK businesses will only be able to use a paper-based 13th Directive process which means refunds can take much longer. Therefore, make claims now to limit the hit to your cashflow.

There are still unknowns about what the trading environment will look like come 1 January 2021, but by covering the fundamentals, your business will be in a better position to succeed in uncertain times.
Tax Partner / North Head of Indirect Tax Services
+44 (0)113 290 6188
Indirect Tax Director
+44 (0)161 817 7599