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Brexit: What to do about supply chains

With little certainty about the outcome of the UK’s position post Brexit, businesses must begin their preparations for change.

While this may seem daunting, there are some steps which can be taken now and choices and opportunities might be identified in the process.

Key challenges are likely to be concerning:

  • infrastructure: transport links and IT;
  • resources: labour, property and money; and
  • the timetable: Brexit begins in 2019.

Most businesses with international supply chains and an international customer base regard delays in the movement of their goods as serious hindrances. Look ahead now to minimise problems later.

What you should be doing now: supply chain

Many businesses have built up long and complicated supply chains. Where these are totally within the EU, the movement of goods and services has been relatively straightforward, but post Brexit there may be delays. Friction in a supply chain means additional cost. The key to success is definitely digital.

Now is the time to make sure you really understand your supply chain. The more you understand what it looks like, where the challenges are and what opportunities exist to make change, the easier it will be to implement these when we know what Brexit looks like.

What you need to consider

  • How do your goods enter or leave the UK? Which ports and when? Will facilities be available to cope with more administration and delays? Will you have sufficient warehouse capacity as lots of similar businesses compete for the same space? Are there alternatives and do you need contingency plans?
  • Know your product. Does your current IT system give you the comprehensive detail you might need concerning proofs of origin. Do you know enough about the composition of your products to understand the impact of tariffs on the finished product?

Brexit extreme

Overview

Although we don’t know how extreme our Brexit will be, we do know that if we simply leave the EU, the trading arrangements applying to cross border trade with countries still in the EU will become the same as we already have with those in non EU countries where no special arrangements exist.

International movement of goods will all become imports and exports

Those businesses which have previously traded only with other countries in the EU, will have to learn some new language and new rules post Brexit.

  • All EU acquisitions made by a UK business will be re-labelled as imports and the import rules will need to be applied.
  • All EU dispatches will be re-labelled as exports and the export rules will need to be applied.

So what are imports, acquisitions, exports and dispatches and why does this matter?

Imports

A business imports from outside the EU

  • Imports incur import VAT and customs duty (where applicable). This is payable at the port before clearance or can be deferred against a duty deferment account

A business has acquisitions from within the EU

  • Acquisitions do not incur customs duty (there is no customs duty within the EU). Acquisition VAT must be accounted for on the next VAT return.

Company example

Consider a very simple example. Choco Ltd is VAT registered and buys chocolate biscuits from France. This particular biscuit is categorised as standard rated for VAT when resold in the UK.

Pre-Brexit – Choco makes an acquisition of £1,000 standard rated biscuits from France. Acquisition VAT must be accounted for on the next VAT return, so Choco Ltd would pay the French supplier £1,000 and declare the acquisition VAT of £200 as output VAT on its next VAT return. This £200 is paid along with any other VAT on sales and is also deductible as input VAT from the quarter’s output VAT in the usual way.

Post Brexit – Choco makes an import of £1,000 standard rated biscuits from France. It will continue to pay the supplier £1,000 but will now have to pay £200 (plus any applicable customs duty) to HMRC to clear goods at the port or defer the £200 (plus any applicable customs duty) against a duty deferment account to be paid the following month (note that there is a likely additional cost for a guarantee to obtain a duty deferment account).

Exports

A business exports to countries outside the EU

  • Exports outside the EU do not require EC Sales lists or Intrastat returns to be completed, but formal export documentation required.

A business makes dispatches to countries within the EU

  • B2B dispatches to the EU require the customer’s overseas VAT registration number on the sales invoice. EC Sales lists are also required and possibly Intrastat returns, depending upon turnover.

Exports and dispatches both require evidence of movement outside the UK, although evidence differs.