After four years, the UK‘s transition period out of the EU will officially end on the 31st December. But what does Brexit mean for British business?
During the ‘transition period’ this year, the Government has been trying to negotiate what the UK’s relationship with the union will look like from 1st January 2021. These talks remain ongoing, leaving our future trade prospects in the balance.
Whilst this uncertainty remains, it would be wise to plan for the worst-case scenario before the end of 2020. Here are the key areas that SMEs should be considering when it comes to a no-deal.
Tariffs and taxes
Perhaps the most significant financial implication will be the costs of import/export tariffs and taxes. EU member states don’t have to pay anything for transporting goods around the union, but if the UK fails to secure a deal, we will begin trading under the World Trade Organization’s (WTO) terms. Businesses will be liable to pay tariffs, and additional paperwork and custom checks will be in place which can cause lengthy and costly delays.
The Confederation of British Industry (CBI) has predicted that in the event of a no-deal, 90 percent of goods exported to the EU will be subject to tariffs. The tariffs and quotas for each WTO member country are available and will allow you to understand how these costs may impact your business.
Whether you are buying from or selling to the EU, tariffs and quotas will apply. If you sell to EU member countries, your goods/services will be subject to ‘third-country’ tariffs which vary depending on the industry. For example, dairy products are subject to a 35.4 percent tariff, while agricultural goods are subject to an 11.4 percent tariff.
Members of the EU share a set of VAT rules. In the event of a no-deal, the UK will be left wide open to decide when VAT applies and at what rate.
There will also be a procedure overhaul for exporting goods to the bloc. Under current legislation, customers abroad pay VAT on goods and the British supplier will submit an EC Sales List, which reports all sales to the EU.
Without a trade deal, an export declaration will need to be made for anything sold to an EU member
state. Once delivered, an import declaration in the country of receipt must be submitted where import VAT and other customs duties will be payable. This process is further complicated because British businesses may need to register for VAT in all EU territories where they export. Although not essential; it is unlikely that customers will want to process imports themselves, especially if they can find an alternative supplier within the EU.
Borders and supply chains
The UK has benefitted from tariff-free trade for decades. Being a member of the customs union allowed British exporters to trade goods across borders freely without paperwork or checks. Without a deal, the EU will impose border checks which could lead to long queues and delays.
The paperwork required is generally to prove that your product complies with the quality standards set out by the EU which HMRC has estimated could cost British businesses and extra £15bn a year to produce.
Conversely, if you rely on EU suppliers, you should reach out to them to understand what their procedures will be post-Brexit. For example, they may plan to raise their prices to cover the cost of export tariffs to the UK. If a supplier doesn’t seem prepared for Brexit, you should look for an alternative to avoid delays to your own business.
Cash flow and finance
To balance the financial requirements of tariffs, VAT, and additional costs, coupled with potential currency volatility and delays at borders, you may need additional funding in the short term to boost your cash flow and ensure you can continue trading. To fully understand the potential impact of a no-deal on your , you should create different scenarios combined with cash flow forecasts. From this, you will understand where the vulnerable parts of your business are and what you can do about them.
Only after doing this should you consider your , otherwise you won’t understand what you are financing. You will need to provide evidence of your business’ historical trading figures and the predicted future to substantiate your application for additional funding – so make sure you have accurate numbers!
The financial implications of a no-deal Brexit could be huge for British businesses, whether you rely on exporting goods for sale or are importing materials for production. Even if there is a deal struck in Brussels, the rules will still change, so you need to understand how they will impact your business.