With a month to go until the Brexit transition period ends, accountants are looking to use every option to ease the burden on businesses.

With new customs duty rules coming into force on 1 January 2021, there are a series of temporary measures brought in by the government to help reduce disruption at borders, including implementing ‘Operation Brock’ in Kent, the planned traffic management system to help reduce disruption for hauliers, and encouraging hauliers to apply for a European Conference of Ministers of Transport (ECMT) permit. Time-sensitive exports such as fresh or live seafood will also be prioritised for a small number of HGVs.

Customs duty changes include:

• A UK-specific tariff (UKGT) will replace the EU’s Common External Tariff on all imported goods (with exceptions)
• Customs declarations on all EU imports and exports, with additional checks on high-risk live animals and plants
• High-risk goods will require pre-notification
• Customs duties and VAT payable on EU imports, putting the onus on the importer to ascertain origin, classification and customs value of goods
• Safety and security declarations required on all EU exports from 1 January 2021 and for EU imports from 1 July 2021.

Builders are sourcing materials from the UK

Ben Harwood, chartered accountant and director of the construction consultancy Naismiths.

We work with a lot of construction companies who import a lot of materials and there’s a lot of wariness around how things will work after the transition period. We’re advising clients that for jobs which are already in progress, they need to accept there will be additional charges and just pay what’s required to reduce delays.

For jobs which are just beginning, companies need to look at their supply chain and considering alternative ways of accessing these materials. Often, they might be able to source from a UK supplier instead. We’re seeing a lot of construction companies starting to do this now anyway in preparation for the end of the transition period.

Other companies are thinking ahead and importing materials long in advance, so they have them ready before the changes come in. However, this poses an extra security risk for additional materials left on site as well as the risk of ‘wear and tear’ which may mean they’d have to purchase the materials again anyway if they have become damaged in the interim.

Next steps: Construction companies need to think ahead and ensure they can access materials from the UK or pay additional charges for EU imports.

Verdict: Commit to sourcing UK-based materials to avoid EU import charges.

Businesses should defer payment via Duty Deferment Scheme if possible

Dan Stopp, UK Accounting Manager, Bokio

When businesses import goods from the EU after the transition periods ends, they will be treated as imports from the rest of the world, meaning import VAT and customs duty will need to be applied. The majority of accountants will be well aware that these imported goods will need to be accounted for on their client’s VAT returns.

Import duty will now be applicable between the UK and EU, cutting into profit margins for those who are importing goods. Consequently, those who are exporting goods may find that their customers start to look towards suppliers based in the EU rather than the UK.

On a positive note, PVA (Postponed VAT Accounting) will be applied to both imports from the EU and rest of the world, resulting in a positive cash flow impact on those who already currently import from the rest of the world.

Next steps: Accountants need to ensure their clients are informed of and mindful of these changes to custom duties rules, especially those who aren’t using Duty Deferment Scheme.

Verdict: Clients need to be made aware of changes to customs duty and use Duty Deferment Scheme where possible.

Businesses need to conduct checks and balances

Mark Taylor, head of international at Duncan & Toplis

Sectors such as healthcare, haulage and logistics and construction have already faced enormous pressure over the past few months in the run-up to Brexit. New rules and regulations are likely to pose a number of challenges for them.

In the healthcare sector, health practices need to consider:

• Requirements for new import and export licenses
• Requirements for customs declarations
• Which tariffs will need to be paid on imports
• Commodity codes, VAT and duty rates
• Which members of staff need a visa or work permit
• Applying for an EORI number
• Registration on the new UK REACH system for chemical regulations. 

Haulage companies need to assess whether their fleet can react effectively and make changes if not. Hauliers should contact clients to ensure they are aware of the import and export rules which might impact them, ensure drivers are aware of the new rules and are able to adapt to new working practices.

For the construction sector, plan ahead by sourcing materials now to ensure construction projects can continue without interruption.

Next steps: It’s important companies aren’t complacent. The landscape will change – and quickly.

Verdict: Awareness of new custom duty rules is key to ensure businesses are as prepared and ready as possible.

As the transition period nears its end, some industries are facing more disruption than others.

In just a few weeks, four years of intense yet sporadic negotiations between the UK and EU will draw to a close, signalling the end of the Brexit transition period on 31 December. The UK will likely leave the EU with only the thinnest of deals, or no deal at all.

Attention is now turning to the potential fall out – which areas and businesses will be lucky enough to scrape through, and which will be most impacted?

According to Charles Brooke, Director at Poppleton & Appleby, failure to agree on a structured Eurozone Trade Agreement before the end of the year would create a ‘financially toxic cocktail’ of a so-called hard Brexit and fallout from Covid-19.

Most disrupted sectors

Last year, the Centre for Economics and Business Research (CEBR) and law firm Irwin Mitchell carried out a sector-wide analysis on the sectors most likely to be affected by Brexit based on three key indicators: free movement of labour, export tariffs and investment from the EU to the UK. The subsequent ‘Brexit Disruption Index’ (BDI) which bases predictions on the assumption that the UK and EU will eventually reach a trade deal, revealed that manufacturing would head the list of most-affected sectors:

• Manufacturing.
• Wholesale, retail and vehicle repair.
• Business administration and support services (including employment agencies, security firms, travel agencies and other).
• Accommodation and food services.
• Transport and storage.
• Agriculture, forestry and fishing.
• Professional, scientific and technical.
• Information and communication.
• Construction.
• Financial and insurance.

Manufacturing was given a 90% disruption rating according to the BDI, while the public administration and defence sector, the least impacted of the predicted 18 industries, has just a 2% disruption rating.

“The Brexit Disruption Index looks at what we are set to lose,” says Josie Dent, an economist at CEBR. “There will be a weaker relationship due to the end of freedom of movement and fewer EU nationals coming over, and there will be a significant impact on trade.”

‘Double whammy’ for manufacturing

The manufacturing sector faces what Dent describes as a ‘double whammy’. Covid-19 hit the industry hard, with many manufacturers closing their doors for several months earlier in the year, followed by supply chain issues due to shutdowns in other countries.

“So while the sector’s exposure to Brexit has not changed – it’s still an extremely high risk – the industry is now in a much weaker position compared to other sectors. This adds further discomfort in certain UK regions which rely on manufacturing such as the Midlands and the North West, because they’ve been really struggling with Covid-19and harsher restrictions,” Dent explains.

Michael Gasiorek, Director of the UK Trade Policy Observatory (UK TPO) and Professor of Economics at the University of Sussex Business School points to increased tariffs for EU importers in the event of a no-deal scenario. This would affect some of the UK’s leading exports including textiles, chemicals, motor vehicles and machinery.

“We will see an increase in tariffs and non-tariff barriers as well as regulations and standards which British firms will have to adhere to,” Gasiorek explains. “This will happen even if we have a deal, so regardless of the outcome of trade talks, we will still be worse off. It’s just a question of how bad the hit is.”

Increased tariffs, regulation and competition across most sectors

From an investment perspective, Gasiorek warns of the ‘longer-run impact’ of Brexit and questions the UK’s attractiveness as a location for foreign investment in the future.

“It’s well known that Japanese companies use the UK to enter the EU market. They won’t dump investments immediately, but over time, it’s logical that more investment will get shifted to the EU and away from the UK.”

Brooke predicts the most likely candidates to experience the ‘most dramatic impact’ of Brexit will be farming and agriculture, international freight and logistics, financial services, pharmaceuticals, heavy manufacturing, aviation and automotive. “They will experience tighter regulation, tariffs, currency instability, trade friction and competition,” he says.

Cross-border logistics too, would be ‘hit strongest’ by regulatory barriers, bureaucratic expense and fuel costs which, Brooke warms, may make their own customers’ goods ‘uncompetitive’ in the face of lower tariff transactions between other EU states.

Labour shortages and supply chain issues for agriculture, healthcare and construction

Mark Taylor, Head of International at Duncan & Toplis, believes healthcare, agriculture and construction are also likely to struggle. A no-deal Brexit would pose a ‘significant risk’ for healthcare in particular, due to the supply of medicines and medical devices to the UK and reliance on an international workforce.

“The EU has a harmonised approach to medicine regulation, and the UK will no longer be a part of this after Brexit,” he explains. “This could slow down the authorisation and importation process. Meanwhile, a lack of freedom of movement will impact the supply of healthcare workers from the EU and may also result in the current workforce leaving the UK.”

The agriculture sector, which is dependent on seasonal workers, will also be impacted. Taylor warns there will be a massive shortage of workers at all skill levels. He voices concerns too for food standards, citing existing ‘weaker’ standards for imported Argentine and Brazilian beef. Future trade agreements which protect food standards don’t cause unfair competition in the market nor create a drive to the bottom in quality is therefore essential.

Within the construction sector, labour shortages due to the cessation of freedom of movement will become an issue. According to the ONS, 7% of UK construction workers are EU nationals. In London alone, EU nationals account for 28% of construction workers. And as the sector has experienced ongoing difficulty with sourcing materials since lockdown in March, Taylor believes Brexit will add to this difficulty, impacting the free movement of goods which could cause material prices to increase.

Prepare for change despite uncertainty

Given that a considerable number of sectors are likely to be adversely affected by Brexit regardless of any future trade arrangements, what can be done to mitigate these concerns?

“Companies need to be prepared and ready as they possibly can,” Gasiorek advises. “That’s hard to do when no one knows the terms of trading, but just because there is uncertainty, doesn’t mean there aren’t ways of preparing.”

Taylor meanwhile, advises companies to look into export and import licenses, customs declarations and tariffs and be aware of which employees require visas or work permits. Materials necessary for projects should also be sourced well ahead of time.

Brooke however, is confident the Brexit fallout will last for just around eighteen months while the economic disruption ‘re-establishes itself’. As he puts it: “Industries will ultimately adapt to changes and actually, we may have the steep climb of covid-19 adaption to thank for that.”

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.

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.”

Border controls

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.

Technology readiness

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.”

HGV service

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.

Civil contingencies

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…”

Amy Brooker, CBI Senior Policy Adviser (EU Negotiations), analyses the state of play with our exit from the Single Market.

The UK left the European Union on 31 January 2020. Since then, it has been in a status-quo transition period, during which the current rules on trade, travel and business for the UK and the EU have continued to apply.

This transition period ends on 31 December 2020 and new rules governing the UK/EU relationship will take effect on 1 January 2021. Deal or no deal, this will mean extra costs and barriers to trading with the EU.

So, the Confederation of British Industry (CBI), a not-for-profit organisation with 190,000 members employing nearly 7m people, has been working hard to help businesses large and small, across the country, to ensure they are as prepared as possible for these imminent changes.

Businesses are getting prepared

It’s abundantly clear that the political timelines are out of kilter with those of business. But firms are preparing for the end of the transition. Many know that changes are coming down the track and are moving to understand and implement a whole range of issues from customs declarations to relabelling.

But these preparations are going on amidst an unprecedented global pandemic. As accountants will know from the wealth of feedback received from clients, firms recovering from the first national lockdown, which has seen cash reserves disappear and stockpiles dwindle, are now entirely focusing on surviving the second national lockdown. So, for many businesses, they are preparing for the end of the transition from the lowest possible base.

Pricing and 2021 budgets

But the rolling deadlines are costing companies, many of which now feel those preparations have gone as far as they can without further clarity and guidance. Because without this, 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?

Businesses confront similar uncertainties when it comes to the detail of a deal. Rules of origin are key to the country’s manufacturers. How these rules will work won’t be clear until a Free Trade Agreement (FTA) is signed. That means businesses are now making buying decisions, without knowing whether they will face tariffs that will wipe out their profit margins next year.

Irrespective of a deal, there will be increased costs and barriers to trade on 1st January 2021

With the UK Government having ruled out extending the transition period past 31 December 2020, a no-trade deal scenario at the end of the year remains a distinct possibility. At the same time, it is clear that if a deal is agreed it will be an FTA offering a markedly different basis for market access between the UK and the EU. This means that, deal or no deal, there will be extra costs and barriers to trade between the UK-EU at the beginning of 2021.

This will affect every business in the UK in different ways – whether part of a pan-European supply chain, stock European products, or rely on the skills of EU nationals. The right planning will help businesses mitigate some of the impacts.

Where to start?

Knowing where to start can be the first hurdle to overcome. So the CBI has produced a range of guidance, tools and checklists on our UK Transition Hub to help business of every shape and size kickstart their preparations.

This guidance covers the 11 key issues firms need to consider when considering how to prepare.

From understanding if a business will be able to hire EU staff, or how GDPR rules will be impacted, to staying up-to-date on the regulatory requirements of UK REACH or product labelling, businesses large and small can explore this up-to-date guidance through the links below.

• Importing and exporting goods
• Trading services with the EU
• Trading outside the EU
• Immigration
• Banking, insurance and financial services
• Data flows
• Funding from the EU
• Public procurement
• Key rules and regulations
• Regulated good and services
• Moving goods between GB and Northern Ireland

We’ve put this guidance together to support all businesses post-Brexit, whether CBI members or not, to demonstrate the likely impact and what to do about it. We urge you to use it and if you have clients to make them aware of what’s available here too.

The CBI knows that business and government are aligned on wanting the best possible deal with the EU and that’s why we will continue to campaign for an EU trade agreement that works for businesses large and small from Edinburgh to Eastbourne.

Further information

For further information on how the CBI can help your business, or your clients, prepare for the end of transition, please feel free to contact the EU negotiations team at the CBI on: [email protected]