Brexit – Practical Steps you can Take now
The shape of any future Brexit deal between the UK and the EU remains unclear. According to research from the ICAEW, only 29% of UK businesses have been able to plan for Brexit and just 43% have held meetings to discuss the risks and opportunities.
Your Supply Chain Includes Suppliers Based in EU Member States
UK companies importing goods from the EU will be adversely impacted by changes in customs procedures and the imposition of import tariffs. Even if your own business does not import goods, it could be easy to be complacent about any action that needs to be taken. It is possible, however, that some of your suppliers import from the EU resulting in them incurring extra costs which they may seek to pass onto their customers.
VAT is also an important consideration. Import VAT will need to be paid at the time the goods enter the UK, and such VAT can be recovered by entering the VAT onto the next VAT return. VAT is normally recoverable subject to the normal rules, but this presents businesses with a cashflow issue. Businesses may wish to consider applying for the Duty Deferment Scheme, which allows for VAT to be paid in arrears, but requires a guarantee undersigned by the importer’s bank.
Your Company Exports to Markets in the EU
A customs border between the UK and the EU will probably mean new costs, mainly in the form of duties. These costs can and should be predicted; for example, the food and drinks industry is expected to see a 20% hike in costs post Brexit, the motor industry 10%, a substantial part of which relates to duties.
This level of erosion in margins can mean the difference between pre-Brexit solvency and post-Brexit insolvency. There are instances where even with no planning or reaction, a business could not be considered a going concern on the basis of its financial standing at this current moment in time.
The business may, however, be eligible for a duty relief scheme. This is a scheme that enables you to pay less (and, in some cases, no) tax or duty on an import. For example, Inward Processing (IP) can be used to get relief from Customs Duty and import VAT on goods that are imported from outside the EU to be processed, and then exported outside the EU or released for free circulation in the EU.
Excise Duty is also suspended when goods are entered into IP. This can represent a significant cash flow advantage for UK businesses.
In addition, UK businesses will need to fill in customs declarations for all goods crossing the UK-EU border and there will be administrative costs associated with this.
What can you do now?
- Consider the benefits of opening subsidiary companies within the EU;
- Consider employing more staff and/or buying or renting warehouse space within the EU;
- Review strategies for the allocation of working capital, currency hedging or tax planning.
This article originally appeared on the blog of our member firm, MHA MacIntyre Hudson.