Brexit Checklist: Are you prepared for No-Deal?
At the time of writing, we have 8 weeks left before March 29th: the final deadline for negotiations with the EU about a new Trade Deal. The Government is still confident that a deal will be reached, as it is in the interest of both parties to agree on a future trading relationship.
As unlikely as it might be, it is massively important for UK companies trading with the European Union to have a contingency plan in place in the event of a No-Deal, as the consequences to being unprepared to such outcome would be awful, and recovering would be really hard.
In case of No-Deal, customs declarations will need to be completed. Can your business integrate with European and UK digital customs systems or do you have arrangements with a broker to do this for you? The UK is implementing a new electronic customs declaration system, due to be launched in 2019. Even if the UK has a free-trade agreement with the EU, customs clearance may still be necessary, and rules of origin might apply – requiring proof that exported products originated in the UK. It’s important to think now about the processes and systems that might need to be administered and the implications should you need to engage a broker at short notice.
The UK government has instructed exporters and importers to the EU to take action now to prepare for a situation where there is no deal. You should familiarise yourself with this. It says that these businesses need to take three actions:
- Register for a ‘UK EORI’ number.
- Decide if you want to hire an agent to make import and/or export declarations for you or if you want to make these declarations yourself (by buying software that interacts with HMRC’s systems). If you want to:
- Declare through an agent, contact one to find out what information they’ll need from you.
- Use software to make declarations yourself, talk to a software provider to make sure that their product meets your needs, depending on whether you import, export or both.
- Contact the organisation that moves your goods (for example, a haulage firm) to find out if you will need to supply additional information to them so that they can make the safety and security declarations for your goods, or whether you will need to submit these declarations yourself.
Guidance was published on 14 December 2018 on how to prepare for the customs declaration service, the new electronic customs system being introduced by HMRC.
HMRC provides further guidance here, including on providers of appropriate software.
You can stay up-to-date by registering for HMRC’s EU Exit update service. Go to www.gov.uk/hmrc/business-support, select ‘business help and education emails’, add your email address, select ‘Submit’, select ‘Add subscription’, choose ‘EU Exit’ then ‘Submit’.
Businesses may also need to apply for an export licence or provide supporting documentation to export specific types of goods from the UK and carriers (for example hauliers, and train, vessel or aircraft operators) will need to make a Safety and Security Declaration for goods moving between the UK and EU. When exporting duty suspended excise goods to the EU, a business will need to continue to use EMCS to record the duty suspended movement from a UK warehouse or premises to the port of export. On import, once excise goods leave a customs suspensive arrangement, they may be immediately entered into an excise duty suspension regime. A business will need to declare the goods on EMCS for onward movement via a Registered Consignor.
Could you benefit from authorised economic operator (AEO) status? This international scheme allows trusted entities simplified customs procedures. But it is best to apply early, the application process is complex and might take some time.
Supply chain mapping is an essential early step in Brexit planning. Knowing where your inputs come from, and what product category they fall into can help you assess the possible tariffs that might apply.
For those who export goods to the EU, for example, you should consider the implications of a worst case scenario. This would be that the UK will leave the EU without any trade deal and all exports and imports to the remaining EU countries will now be subject to tariffs under the rules of the World Trade Organisation (WTO). It is also important to remember that 57% of UK exports go to non-EU countries and might already be subject to tariffs or quotas depending on the arrangements the EU customs union has with the destination country. Some exporters will therefore already be familiar with customs procedures, but extending them to all exports will clearly come at a cost. A more serious problem will be faced by those UK exporters who only export to the EU, for whom applying customs procedures will be entirely new. In the event of “no deal”, the transitional and ongoing costs for these businesses could be considerable in the short-term. You can find the WTO and EU third-country rates online.
Keep in mind that for major manufactured inputs you might need to consider where supplies originate.
Non-tariff or “technical” barriers can be an even bigger barrier to trade than tariffs. These take a variety of forms. For example technical standards or regulations with which a product or service has to comply or assessment and/or certification requirements. Such rules might affect packaging or labelling. UK standards and regulations will be aligned with the EU at the point of exit, but it is possible that if there is no deal UK assessment and certification arrangements may cease to be recognised in the EU. The issues differ from sector to sector and you should familiarise yourself with the relevant government guidance.
The British Standards Institute (BSI) is a member of the European single standards system. The European standards bodies CEN and CENELEC are not agencies of the EU and their current membership is broader than the EU. BSI’s ambition post-Brexit is to remain a full member of CEN and CENELEC. BSI has published guidance regarding the continuity of their certification arrangements.
Businesses may wish to ensure that their documentation and databases of the standards, certification and labelling requirements that apply to them are up to date and accessible to staff planning for Brexit.
Contracts might need to be renegotiated or terminated as a result of Brexit. It is particularly important that they adequately clarify the terms for trade across EU borders, including how VAT is dealt with. In the event of no deal, you will need to ensure that contracts and International Terms and Conditions of Service reflect that they are now an international exporter or importer; further guidance from the government on international trade paperwork is available below.
Immigration status and planning
Existing employees who are EU nationals will need to apply for settled status. it is important to plan for cut-off dates and any differential status that might apply to new arrivals to the UK. Businesses might need to consider how they will track the nationality status of employees and ensure immigration compliance. Businesses that have historically been reliant on EU workers might wish to investigate measures they could take to boost staff retention and motivation.
Obviously, without a deal in place, the immigration status of EU workers in the UK will become more complicated. Existing employees from EU countries will have to apply for settled status.
VAT and duties
As a result of more complicated import procedures, if no Deal is reached, HMRC have pledged to reintroduced postponed accounting for duty and VAT.
This means that VAT and duties of goods imported from third countries (i.e. the EU in case of No-Deal) can be settled on a company’s VAT return instead of immediately at port