ICAEW.com works better with JavaScript enabled.

quarterly issue 3

How UK companies should prepare for Brexit

Author: ICAEW Insights

Published: 17 Sep 2020

New Year’s Day 2021 will not be a typical 1 January. An entirely new customs regime will come into force, delivering a shock to companies not sufficiently prepared for the change ahead. Unless a trade deal has been signed and ratified, the imposition of tariffs is set to impose new costs on importers, while creating challenges for those who export. Preparations are complicated by the fact that the final arrangements are still not clear. Nevertheless, there is a lot that can be done by businesses to minimise disruption in the coming months, says Trevor Clawson

Avoid delays

UK businesses that trade with countries outside the European Union will already be familiar with an Economic Operation Registration Identification (EORI) number. From 1 January, British companies will not be able to trade with the EU without an EORI. This is more than a nicety. In the absence of an EORI number, goods can be held up at ports.

Equally important, non-compliant businesses won’t be able to take advantage of special measures — such as deferred tariff payments — that are being introduced to smooth the flow of trade. Only UK-established companies are eligible for an EORI. Others will have to appoint third parties. 

Prepare customs declarations and check for quicker import processes

HMRC has suggested that customs declarations may rise from 50 million to 250 million per year. While some companies will have the processes in place, others will be addressing this particular challenge for the first time. The impact could be considerable. “We are used to bulk goods traffic traffic with no customs friction,” says Bob Jones, a partner currently working in Deloitte’s Global Trade Advisory practice. “From 1 January, pretty much everything that is moved between the UK the UK — Northern Ireland being a special consideration — and the EU will require a customs declaration, even down to individual products.” Typically, a declaration will have about 30 fields to be completed. Each declaration generally costs between £15 and £50, sometimes more.

Importers could be eligible to bring goods into Great Britain from the EU without advance authorisation. Simplified rules will apply to standard goods being imported for the first six months after the transition period ends. It means importers only need record imports in their own records and account for VAT if required, then have up to six months to make a supplementary declaration. You (or someone who does your import declarations for you) will need to meet a list of criteria to be eligible.

Who’s responsible?

It’s vital that everyone is clear who has responsibility for filling in the paperwork, making the declarations and paying any tariffs and VAT. “The International Chamber of Commerce’s Incoterms [International Commercial Terms] will be very important in assigning responsibility,” says Deloitte’s Bob Jones. “It is also important to be clear about when title to the goods is transferred, particularly for VAT purposes. Most businesses will assign third parties to handle the customs processes. 

Ideally, the movement of goods should follow a co-ordinated sequence running from one side of the border to another. Let’s say goods are being exported from Europe to Britain. The process begins with the preparation of a customs declaration which is then submitted to the customs authorities on the export side. Once the goods cross into the UK, the carrier submits a customs declaration to authorities here, who may carry out checks. Special information may be required in the case of certain product categories such as animals.”

Know your costs and mitigate higher costs

VAT will be payable when goods move to or from the EU and if no trade deal is in place, tariffs will apply in both directions. Importers may be able to defer payments if they meet certain conditions. The UK and EU have published tariffs across the full range of product categories. Businesses should assess the cost not only of additional VAT and tariff payments but also the administrative burden.

For categories of goods that have tariffs imposed on them, importers will have to absorb the costs or pass them on to customers. Tariffs threaten to push up the cost of goods shipped to the EU by British exporters. In the event of a deal, additional bureaucracy will, to some degree, push up the cost of goods travelling in either direction. Deloitte’s Bob Jones recommends measures to mitigate cost rises. For importers, this might include looking to implement special customs procedures like inward processing, or at alternative sources of supply. ‘It could be that importers could in due course benefit from trade deals with countries outside the EU. These should allow UK companies to buy more cheaply from elsewhere in the world.’ Customs warehousing or transit arrangements may reduce costs.

Manage and audit the supply chain

The breakdown of a time-sensitive supply chain could mean a car plant running short of components or shortages of fresh produce in supermarkets. Decision-makers should be talking to suppliers about maintaining resilience, for instance, setting up storage close to a factory, or sourcing of alternative suppliers.

The supply chain issue dovetails with the new customs declaration regime. Complex tariff arrangements may arise, even after a trade deal. John Boulton, ICAEW Director, Technical Policy, says: “Proving the “origin” of your goods will be key. Without this importers will not be eligible for preferential tariffs”. But this can be complex; for instance, importers buying goods from Europe could find they have to pay tariffs because there are components that originate elsewhere. This creates a short-term challenge. Businesses will have to talk to suppliers about the provenance of component parts if they are to avoid customs hold-ups and potentially, increased costs. This is a complicated area and work should begin early. And business should assess the impact of rules governing the movement of goods from mainland Europe, through the UK and on to Ireland.

Find a range of resources to help you prepare for the end of the transition period at icaew.com/brexit.