Brexit Uncertainties And Contingency Planning
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Mercia Group 
14 September 2018 00:00
Introduction
Everyone knows that the UK is set to leave the EU on 29 March 2019. What we don’t yet know is the terms on which we shall do so. Will this be a hard Brexit, a soft Brexit or something in between? How will it affect cross border transactions, taxes, duties, grants and regulations?
Head In The Sand?
It might be tempting to think that as we don’t know the answers to these questions there is no point in doing anything, but that could be a very risky strategy. If we find on the 30thMarch that we need entirely new systems for, say, cross-border VAT and we have done no planning as to how we might achieve this, it may disrupt trading for months after. This is clearly bad news for the companies concerned but would also be very bad news for the economy as a whole.
Contingency Planning
This risk of a huge trade impact and general chaos surrounding Brexit has prompted the Treasury and HMRC to issue guidance for contingency planning in the event of a “no deal” exit. The guidance is prefaced with several comments including:
“It remains our firm view that it is in the best interests of both sides to reach agreement on a good and sustainable future relationship. But we also concluded that it was responsible to continue preparations for a range of potential outcomes, including the possibility of ‘no deal’. Given the short period remaining before the necessary conclusion of negotiations this autumn, we agreed preparations should be stepped up.”
Trading With The EU
Although we don’t know what exactly will happen businesses are being urged to consider the potential impacts. One area of concern is VAT as it relates to trading with the EU. The guidance on this says, in summary, that the actions businesses can take are to:
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Understand likely changes to customs and excise procedures
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Take account of the volume of trade with the EU and supply chain impacts
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Consider the tariffs which will apply if there is no deal, including:
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The World Trade Organisation (WTO) terms
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The Most Favoured Nation (MFN) tariffs and
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No-preferential rules of origin
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If necessary be ready to renegotiate commercial terms to reflect changing customs and excise procedures
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Consider how customs declarations for EU trade could be submitted if there is no deal (e.g. software/use of a broker/logistics provider etc.)
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Register for HMRC’s EU Exit update service.
Clearly some businesses will be much more affected by a no-deal Brexit than others. If trade is only within the UK it might be thought that there is little to be worried about but remember the supply chain as well as where the sales are being made. If you rely on goods being imported from the EU, there is still going to be an impact requiring consideration of the above points.
For instance, UK businesses importing goods from the EU could find that the rules to be applied will be those currently in place for non-EU countries. If a business currently only imports from the EU they will not be familiar with the non-EU rules or have the necessary software or procedures to cope with the changes. It is tempting perhaps, to assume that only bigger businesses buy from and sell to, EU countries. However, with the ease of setting up an internet business and the relative simplicity of cross EU business even very small concerns might be trading regularly with the EU.
More Than VAT And Trade Issues
It is not only concerns about trade which might need to be considered in a no-deal Brexit. Many businesses have other EU related aspects, such as grant funding, regulatory requirements, study and workplace rights. The Government has issued guidance on these aspects and intends to issue a total of about 70 such guidance notes, with 25 already issued. These cover subjects as diverse as labelling tobacco products, ensuring blood and blood products are safe, banking and insurance, nuclear research and farming payments. Each entity should therefore consider the potential impact of no-deal on their activities and consider what contingency plans may be necessary.
Conclusions
Although the government is still very much hoping to have an exit deal in place which will smooth the transition and alleviate some of the problems mentioned above, this cannot be guaranteed. It makes sense therefore, for businesses to consider all the relevant guidance which has and will be issued to identify what can be done as part of a no-deal contingency plan.
Even small businesses can be affected and there doesn’t have to obviously be any EU trade for some sort of impact, although clearly those businesses with EU trade will usually be subject to the most change.
For those of you in practice there is a role to ensure clients are aware of the guidance being issued and the need for contingency planning.
Whilst “it” may never happen, it is better to be prepared than to suffer the consequences if it does.
