It’s been a long journey along this Brexit road since the people of the United Kingdom voted to leave the European Union on 23 June 2016. Now, almost four and a half years later, the UK is on the cusp of leaving the single market and customs union. Even after all this time, we don’t have clarity on what to expect as we’re still in this deal/no-deal limbo. And there are only two months to go.
It’s difficult to take steps forward when you don’t know what you’re walking towards. Small and medium-sized businesses must be feeling the weight of this more than most. In a recent survey we undertook of 2000 businesses, 32% of respondents said that they don’t see any risk of a no-deal Brexit. Regardless of whether they’re aware of any risks, deal or no-deal, things are going to change for the UK’s traders.
It’s easy for businesses to thrive amid certainty. But while certainty is not always possible, being prepared for different outcomes can be the next best thing. We know that certain aspects of business are going to be affected by leaving the EU – we just don’t know exactly in what way yet. But with this knowledge and your knowledge of your clients, you – the accountant – are already equipped to give your clients some valuable advice.
The workforce will be affected
According to our survey, 27% of respondents were mainly concerned about workforce availability as a risk for their business. With statistics showing that, for example, a quarter of all staff employed by the construction industry are non-UK nationals, perhaps there should be more concern shown for the potential ramifications on the workforce. Lord Agnew, a minister working on the preparations for Brexit, said in a recent interview that he fears traders will be unprepared come 1 January. The government can surely admit that, without clarity on any plans, they’re not giving businesses much to go on!
In just two months, the free movement of people between the UK and the EU will be a thing of the past. EU nationals working in the UK will at the very least be faced with reams of paperwork to complete so they can continue living here. Businesses that rely on migrant labour coming from the EU seasonally may find that this source of labour dries up. We had a glimpse of the impact of a lack of labour on the summer harvest this year as labourers were not able to move freely from Europe due to COVID-19.
Business travel won’t be as easy as it was before
Another part of life that we’ve taken for granted is travel to the EU. It’s been easy to jump on a train and head over to France with no real planning or paperwork needed. And while you’re on the continent, it’s been easy to hop over to another EU member state without a second thought. However, from the new year, visas will be needed for all countries in the EU and each country may have its own requirements when it comes to fees, processes and paperwork. And there’ll be no spontaneous trips to other EU countries while there either; a visa for the next country may very well need to be obtained.
COVID-19 has taught us a lot about the reality of business-related interpersonal interaction. It’s shown us that with the help of technology, we can connect with our colleagues in a way we never thought possible. Business travel has adapted during the pandemic by switching to video conferencing. But the question is: how much business travel will resume once the pandemic is over and we have ‘brexited’ the EU?
Businesses can also expect changes if they or their employees provide services in a regulated profession in the EU. Will the UK’s professional qualifications still be accepted in EU countries?
Importing to and exporting from the EU
The EU is our biggest trading partner at 45% of our exports and 51% of our imports – and an estimated 250,000 UK businesses trade with the EU. How trade will be affected after 31 December is down to whether or not we leave with a deal. While we’re still uncertain about that, the government’s leaflet Get ready for Brexit gives us a bit of insight into what we can expect:
- There will be changes to UK-EU trade at the UK border including on customs, tariffs and VAT
- You need to apply for a UK Economic Operator Registration and Identification (EORI) number (starting with GB) so that you can continue to trade with the EU
- There may be new rules you need to comply with if you sell manufactured goods
- There may be new rules you need to comply with if you operate in a service sector within the EU
Everything that moves between the EU and the UK, even a single product, will need a customs declaration. UK businesses could see tariffs of between 2.8% and 35% on goods exported to the EU; the impact on UK traders would be great.
The UK would impose tariffs on goods coming in from the EU and could reduce or even remove them altogether, meaning that some products would become more expensive while others would become cheaper. UK manufacturers importing goods from the EU may need to talk to suppliers about the provenance of component parts. Where components originate could cause delays at customs and potentially increase the cost of products.
The freeports the government intends to implement will be special customs zones that allow goods to be imported, stored and exported without tariffs being imposed.
Impact on the supply chain
UK businesses whose supply chains or operations rely heavily on EU countries will be particularly at risk come 2021. Without a trade deal, things like product standards, safety regulations and sanitary checks on food and animals would have to be checked at borders – with consequent lengthy delays which could upset the entire supply chain. The breakdown of a supply chain could mean your clients being unable to manufacture their products or their shelves sitting empty.
The government is preparing for long border delays due to anticipated paperwork problems. Customs declarations are understood to be quite complex; any businesses new to the process may find that this causes disruptions to their supply chain. If the UK leaves without a deal, it could take years for negotiations to be concluded – leaving businesses floating in a cloud of uncertainty way past the 31 December deadline.
What your clients need to know
In a nutshell, your clients will be affected by Brexit if they:
- Import from/export to the EU
- Employ EU workers
- Send workers to visit EU states
As a strategic advisor, you’re well placed to provide insights into how your clients should prepare. Here’s a short checklist to get you thinking about the types of issues your clients need to be aware of:
- Are your clients ready for the new trading arrangements due to kick in on 1 January 2021?
- Do your clients have non-UK nationals on the payroll? Can they help their employees with their paperwork?
- Do your clients have a lot of suppliers in the EU? Have they explored their options to see if they can source supplies from elsewhere?
- Do your clients export a lot of their goods to the EU? Have they explored new markets in other territories?
- Do your clients know who is responsible for filling in certain paperwork, making declarations and paying tariffs and VAT?
- Have your clients done scenario planning for their businesses on both a deal and a no-deal outcome? Have they tested their systems and processes to withstand whichever outcome occurs?
- Should your clients consider how to engage with stakeholders about potential changes or issues?
- Are your clients aware that they will have to apply VAT when trading with countries in the EU?
- With regard to international payments, are your clients aware that there may be extra charges and delays on payments made and received? Should your clients have localised business accounts to avoid currency fluctuations and fee charges?
Let your clients know that the government keeps their UK transition webpage updated and they should visit it regularly to make sure they don’t miss any critical information. The government will also be launching an app soon to help businesses check if they’re prepared to continue trading with the EU from 1 January 2021. Keep an eye out for it and let your clients know when it’s available.
As an accountant, your role as a strategic advisor is absolutely crucial right now. You know Brexit is coming and you know your clients. You have a duty to up your game and help them plan so they can prepare for what lies ahead.