Gerry Myton, partner and head of indirect tax at England-wide Streets Chartered Accountants, looks at ways to mitigate against this week’s crucial votes and what can be done now to prepare for Brexit, in whatever form it takes.
This article is the view of the author and not necessarily of Ready for Brexit
By now, we are all aware that Brexit has become a subject tinged with uncertainty with even those negotiating having difficulties knowing how the deal will pan out. The difficulty for the thousands of SMEs across the UK is whether they incur costs on implementing strategies that may, and subject to this week’s votes, with hindsight be money wasted!
We’ll know more after the planned series of votes this week. But at the moment we are advising on certain aspects of post 29 March matters with a blindfold on.
The trouble with tariffs
There are reports that 80 to 90% of tariffs could be dropped in a no-deal scenario. The Government has indicated that some sectors, such as motor, agriculture and clothing, could retain their protection through import tariffs. If this is the case, then for those whose protection is removed, this could cause significant profitability issues, as the margin they make includes that duty advantage over a foreign supplier.
This kind of uncertainty could cause further economic instability but could end up being good news for those who import raw materials and re-export goods. It could make them more competitive and negate the needs for certain customs approvals.
This lack of clarity is also causing confidence problems, for example, to believe that Honda has announced it is ceasing production in Swindon for any other reason than Brexit is somewhat short-sighted. Risks are also present from other motor manufacturers such as Nissan, Toyota and even the production of BMW’s Mini.
It could well be economic suicide if we don’t get a deal and erect a barrier to trade.
The best advice we can give a business now that trades to/from Europe is to:
1) Get an EORI number
2) Register for the Transitional Simplified Procedures which reduce the administrative burden at the border
3) Map your supply chain and find your duty hotspot and take advice to determine what mitigation might be available
4) Review your terms of business and the incoterms you trade under
There are some matters which can be addressed now, others that can wait but each business – irrespective of size – needs to have a plan to continue trading after 29 March with the EU27.
Stockpiling is something we are witnessing and should be considered by businesses who import from and sell to the EU27, especially where their imported/exported goods have a positive duty rate post 29 March. This should be done in conjunction with point four above.
Businesses are stockpiling up to eight weeks’ worth of goods at the moment to prepare. Everyone we have spoken to lately is buying more than they need. Buying without duty however, is not without its downside. Those stockpiling are likely to be eating into their once-healthy cash flows.
To mitigate any potential problems, it is key to understand your duty position post 29 March and to assess the various customs authorisations to determine what might assist your business to mitigate any adverse cashflow problems. Authorisations, such as customs warehousing, inward processing or outward processing, could work depending on individual circumstances. Authorised Economic Operator (AEO) status may work for some too.
At the present time, uncertainty still reigns. This week might be the crunch time for the deal we leave with, but we have been here before. Until more aspects of this are known, we will not be able to predict or look forward with too much surety.