The recent report of the National Audit Office (NAO) shows what to expect as we enter the last six weeks of preparation for leaving the EU Single Market and Customs Union.
It doesn’t make for comfortable reading. But accountants can still have a positive impact on the situation.
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State of play
The UK has just weeks left inside the UK Single Market and Customs Union. Even with so little time left, the picture as to what businesses should do next remains somewhat cloudy.
Many in the business world are blindly placing their hope in a free-trade somehow emerging at the eleventh-hour. Many diplomats believe the EU summit taking place in Brussels on Thursday 19 November marks the last opportunity to secure such a deal.
However, the stark truth is that, even if a deal is reached, it will not make the coming challenges magically go away.
What the NAO report reveals
According to the NAO, the Government’s spending watchdog, disruption to businesses is now unavoidable, with or without a deal.
Its recent report on UK preparedness stated that UK-EU trade will still face major upheavals, even if a trade deal is agreed.
“It is very unlikely that all traders, industry and third parties will be ready for the end of the transition period, particularly if the EU implements its stated intention of introducing full controls at its border from 1 January 2021,” it says.
“The NAO report paints an alarming picture of the disruption likely to happen when we hit January.”
Mark Farrar, Chief Executive, AAT.
In particular, the NAO claims that British ports and businesses simply aren’t prepared for the increased border checks likely to happen from 1 January. This is due to a multitude of factors ranging from a delay in ports adopting new government IT systems to the impact of coronavirus on local authorities and supply chains.
“The clock is very much ticking: finance people, be they in businesses or in practices that advise businesses, have every right to be concerned,” says Mark Farrar, chief executive of AAT.
“The NAO report paints an alarming picture of the disruption likely to happen when we hit January. Other surveys have touched upon the unpreparedness of small businesses who aren’t used to dealing with imports/exports outside of the EU, who’ll be exposed to customs administrations issues, new VAT regimes and potential tariffs.
“A lot of this [work and accompanying preparation] will fall upon the shoulders of those in finance.”
One of the biggest potential problems highlighted by the NAO is the increased EU border checks, which are forecast to soar from 55m to 300m in 2021. It claims that British ports aren’t prepared for these new controls, as officials haven’t employed enough customs agents – the professionals who help businesses submit complex customs declarations.
Indeed, there is a shortage of at least 5,000 government-approved customs agents, according to recent data from advisory firm Blick Rothenberg.
“If your business or client intends to make customs declarations, they’ll need an agent,” says Rupert Moyle, partner and head of VAT and duty at accounting network Kreston Reeves. “However, these agents are in short supply. I’ve heard some aren’t taking on any new customers.”
The Government itself is also anticipating turmoil: in September it predicted a ‘worst-case scenario’ of queues of up to 7,000 lorries in Kent.
Usually, technology could help ease such disruption. Although the Government has announced £1.41bn of funding for the border industry, the NAO report claims there is little time for UK ports to integrate and test the Government’s new IT systems with their systems. As a result, the NAO says many ports may resort to “manual processes” instead, prolonging any delays.
Somewhat worryingly, the report suggests that “integrating the processes, IT systems, infrastructure and resources to operate together for the first time from 1 January 2021 is inherently complex and high-risk.”
One example of the Government’s new technology is its ‘Check an HGV is ready to cross the border’ online service, which hauliers can use to check and self-declare that they have the correct documentation for EU import controls. Yet, the NAO found the Government needs to do more work on the service, particularly how it will be enforced and work together with traffic management in Kent.
Covid-19 isn’t helping matters. The NAO report has found that the pandemic is making the Government’s civil contingency plans (such as ensuring critical goods and medicines can still reach the UK if supply chains are disrupted) difficult to enact, as local authorities, industry and supply chains are all stretched at the moment. The emergency response has also used government resources and paused important communication flows to traders and industries.
Northern Ireland Protocol
The Northern Ireland Protocol – which will see Northern Ireland continue to follow the EU’s customs rules – is set to come into force on 1 January.
Yet, the NAO report has said, due to “the scale and complexity of the changes, the lack of time and the impact of ongoing negotiations, there is a very high risk it may not be implemented in time.” It also expressed concerns about the checks that will be required for goods moving to Northern Ireland from the rest of the UK.
Other services are unlikely to be ready in time, according to the report. For example, it predicts it will be “challenging to establish” the new £200m Trader Support Service – which helps traders move goods to Northern Ireland, due to difficulties of identifying Northern Ireland traders, recruiting/training staff and developing new software to connect with HMRC’s systems.
How accountants can help
There is a range of things accountants can and should do to help minimise the impact of a brutal Brexit on businesses.
Be proactive with advice
“Accountants should step away from the computer and actively communicate with business managers,” says Farrar.
“If necessary, use examples particular to the organisations to demonstrate the impact this could have on trading… It falls on accountants not to sit and wait to be asked for help, but to make sure they’re on the front foot.”
Test client readiness
“It’s all very well asking, ‘Are you ready for Brexit?’,” adds Moyle. “The business might say they’re ‘fine’, but you need to be testing their understanding. If you’re not proactive in talking to them, then their business might struggle. And if they can’t clear goods through customs, then their business may halt.”
Get a customs agent
Moyle recommends that businesses should find a customs agent and get clients to review their pricing models and contracts. This is problematic, as the NAO report acknowledges, as there is a long-standing shortage of trained customs personnel and increasing demand. However, the British Chambers of Commerce is offering help in this regard.
Review pricing models
Amy Brooker, CBI Senior Policy Adviser (EU Negotiations), says: “firms must plan for the tariffs that come with no deal. But when setting prices for the coming year, do firms absorb the increased costs and scale back vital investments or do they pass on costs to their hard-pressed customers?”
Moyle adds: “Accountants ought to be encouraging their clients to understand their pricing models.
“If they’re selling goods into the EU, there may be additional duty and VAT costs. You need to make it clear who’s responsible for these payments. Will you [the business] be paying it on behalf of the customer? Or are you expecting the customer to sort it out? [Therefore], they’ll need to change their terms and conditions and contracts to reflect this plus make it clear for customers. Businesses also have logistics and duty costs too, which also need to be reviewed in any contracts. Don’t forget clients/businesses may need to amend websites too.”
Plan for the inevitable disruption
Experts believe the disruption will permeate most areas of business, even those organisations that don’t currently trade with the EU.
“The end of the transition period will impact all of us,” says Farrar. “Your client/business may not be dealing directly with imports/exports with the EU, but this could still affect them. For example, are their staff properly registered for the settlement scheme? Do they exchange data with EU countries and have the right contract clauses from 1 January to deal with that? What about supply chains? What will happen if suppliers increase their costs? Or if some of their clients failed? I think everyone needs to have their eyes open as we go into the new year.”
Don’t underestimate the challenge
“Coming on top of Covid-19, and during a busy period in the year, I think the added strain on cash flow in organisations will truly be mind-[blowing], if not terminal,” says Farrar. “As they say, plan for the worst, and hope for the best…”
Christian Koch is an award-winning journalist/editor who has written for the Evening Standard, Sunday Times, Guardian, Telegraph, The Independent, Q, The Face and Metro. He's also written about business for Accounting Technician, 20 and Director, where he is contributing editor.