Checklist for change

Make sure your business is prepared for Brexit

It’s been a long and drawn-out separation from the European Union but, following the 11-month transition period, the UK has finally left the EU’s Customs Union and Single Market.

A new free trade deal with the EU was finally agreed and ratified and businesses need to prepare themselves for life outside of the EU from 2021.

Wait and see is no longer an option.

Certain policy easements that were put in place for a potential no-deal Brexit will not be reintroduced because the UK Government’s view is that businesses have had time to prepare.

So, what are the immediate actions businesses need to take? Whatever the size of your business, you should prepare your supply chains, workforce, VAT registrations, processes and cashflow.

Below we outline a number of areas that businesses predominantly operating in the service sector should consider from an indirect tax point of view.

Whatever the size of your business, you should prepare your supply chains, workforce, VAT registrations, processes and cashflow

Customs procedures

In February 2020, the UK Government confirmed that, at the end of the Brexit transition period, UK sales and purchases with EU counterparts will become exports and imports, as with the rest of the world. EU and UK traders will therefore have to submit customs declarations and will be liable to checks on goods. Any business buying products from the EU will need to understand the changes; how these may impact timescales for deliveries or affect costs, for example, new customs duties payable or agent handling fees.

Adjust your contract terms

Where your post-Brexit trade will incur additional duty, administrative costs for transport or other costs, you should review your terms of businesses with suppliers and customers. Will you or your supplier become liable for importation and VAT registration obligations when EU acquisitions become imports?

Know your customs duty rates

Confirm what duty tariff you will be paying on imported goods. Some tariff rates will go up, but others will go down under the new UK Global Tariffs. Despite a free trade agreement, customs tariffs may still be payable based on the origin of the goods, so additional information and an understanding of this may be required.

Safeguard your supply chain

Customs simplifications such as Customs Warehousing and Inward Processing Relief can help protect your cashflow from customs duty and VAT charges. Consider applying for Authorised Economic Operator (AEO) status and review your country of origin position, commodity codes and customs values. Consider also the potential loss of call-off stock and consignment stock simplifications which may add to compliance costs and obligations. Are there UK-based suppliers that may offer a better solution?

Ensure your systems are ready

Check that your systems are set up to handle the new VAT requirements and customs arrangements and make sure your teams have been trained on what they need to do. For instance, Postponed VAT Accounting will involve accounting for import VAT on the VAT return (for both EU and rest of the world purchases) rather than paying it at the port or airport of entry to the UK.

To take advantage of this, the import declaration must be appropriately completed, so instructions to the agent need to be clear and accurate.

Trading in the EU

If you deliver work in the EU you will need to check that you have all the necessary licences/permits/approvals for the other EU countries you operate in so you can carry on trading.

Secure your staff

Check to make sure any EU staff working in the UK have applied for settled status, or pre-settled status, and understand the recently announced transitional arrangements.

Northern Ireland

As a result of the Northern Ireland Protocol, trading in or with Northern Ireland may require additional procedures or registrations to be in place. Any businesses which do trade with or in Northern Ireland should ensure they understand what is required.

Making VAT reclaims on EU expenses

There is an established online mechanism for reclaiming VAT on business expenses you incur within the EU. It is likely that UK businesses will only be able to use a paper-based 13th Directive process which means that refunds can take much longer. Therefore, make claims now to limit the potential hit to your cashflow.

Considering an EU entity

Many businesses more involved with the supply of goods are setting up companies, particularly in Republic of Ireland and the Netherlands, to ensure that they have a presence in the EU and to take advantage of EU arrangements. This obviously comes with other taxation consequences to be considered.

There are still unknowns about what the longer-term trading environment will look like, but by covering the fundamentals, your business will be in a better position to succeed in uncertain times.

If you would like to understand the specific impact on your business, please contact Pauline Davidson on 07970 127 270 or email pauline.davidson@bdo.co.uk

By Pauline Davidson

VAT Associate Director, BDO LLP