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Brexit transition: 25 days to go

4 December 2020: With a little over three weeks to go until the end of the Brexit transition period, ICAEW’s Rachel Underhill and John Boulton look at some key considerations for businesses and advisers.

Unless you’ve been hiding under a rock, you will know the UK is set to reach the end of the transition period to leave the EU on 31 December at 11pm UK time. Despite much media focus and speculation, at the time of writing a confirmed trade deal with the EU still hasn’t been announced. 

For businesses and those advising them, this leaves a lot of uncertainty – particularly at a time where they are navigating the effects of the pandemic, government support and COVID-19 restrictions. Perhaps as a result, data from Google Analytics shows that search activity for Brexit is lower now than 30 days before previous deadlines we have faced, suggesting preparations aren’t yet accelerating.

For businesses that haven’t been able to prepare as extensively as they would have liked due to these other pressures, ICAEW’s Brexit Checklist aims to cut through the fog. As we enter the final month of the transition period, here are several key areas – with links to more detailed information to be found in the checklist and webinars mentioned below. 

Cash

As businesses may have depleted any “Brexit buffer” they had built through dealing with the pandemic, cash could already be a critical issue. This could be exacerbated by increasing uncertainty about how the transition will play out – deal or no deal – and the increased costs faced by both importers and exporters that are likely to trickle down the supply chain. 

A reminder then that the deadline for the various government-backed COVID loan schemes has been extended to 31 January 2021, and businesses can now apply for top-ups to Bounce Back Loans up to a maximum total of £50,000 or 25% of turnover, whichever is lower. The Business Finance Guide is also available to help support businesses and their advisers explore the various finance options.

Workforce

Organisations looking for more information on the UK’s settlement scheme and the new points-based immigration system are urged to review this webinar with CIPD and Edwin Coe. Details of getting a sponsor license under the new immigration system are covered, with Edwin Coe and CIPD warning that it is more costly than you might expect. As for the settlement scheme, it is important to note that EU/EEA citizens can apply for settled status up to 30 June 2021, as long as they are living in the UK on 31 December 2020.

Tariffs

The UK Global Tariff has been announced and reduces average customs duty on UK imports from 7% to 6%, with some tariffs cut to zero or rounded down. Businesses needing to understand how tariffs are calculated for the first time will need to consider both the customs value of their goods, the category their goods fall into (of which there are some 5,000) and their ‘origin’. On origin, John Boulton, Director for Technical Policy at ICAEW, reiterates the potential complexity of this area and urges members to review the guidance ICAEW has published on this topic. The tariffs payable can depend on where goods are deemed to originate.

Customs

Questions from the audience of a recent Brexit webinar showed just how thorny this issue can be. A crucial recommendation is to use the time remaining to speak to your freight providers, engage an intermediary or seek advice. Even if there is a free trade agreement, border controls will still apply – so this is something for which businesses must prepare. ICAEW’s recent webinar with MHA McIntyre Hudson gives a more detailed technical overview of customs, and this Tax Faculty webinar gives more technical guidance on VAT.

Here are six key questions to ask yourself. If you don’t know the answer to any of these, then find out as soon as possible by following the links.

  1. a) What is your GB EORI number? 
  2. b) What is your importer’s EU EORI number?
  3. c) Who will make customs declarations?
  4. d) Whose duty deferment account will you use?
  5. e) Who accounts for VAT on imports?
  6. f) Have you registered for the “trader support service” for Northern Ireland trade?

INCOTERMS

At several online events we have heard comments to the effect of: “my client in Europe will handle all of that” - but has this been agreed? Who pays shipping and insurance, as well as any VAT duties and costs of administration? If they are not already in place, these need to be discussed and negotiated. Contracts should set out clearly what responsibilities your business has: internationally recognised terms of trade ‘INCOTERMS’ can be used to do this. 

Corporate reporting

With COVID-19 and Brexit still looming large, this will be a very difficult reporting season, with a whole range of new situations preparers and auditors potentially need to take into account. ICAEW has set up a 2020/21 Reporting Season Hub and has prepared six key questions to consider for 2020 year-ends. These might be used to identify changes in the business due to COVID, potential accounting consequences flow from each question:

  1. What lines of business are currently not viable?
  2. What government financial support has been received?
  3. What assets are being used less?
  4. What contract obligations might you not honour?
  5. What contract rights might you not enforce?
  6. Why do the accounts matter?

If not certainty, then a light touch

Members across the UK and Europe have cited the need for certainty as their number one ask when it comes to Brexit. With just a short time to go, any deal is likely to be bare bones. Rachel Underhill, Senior Business Strategy Manager, says that what members have asked for in lieu of absolute certainty is some leeway as they adjust. 

2021 has many COVID-19-related pinch-point dates and cliff-edges already, and some space as businesses recover from the pandemic would be welcome. 

ICAEW continues its dialogue with policymakers and welcomes specific examples of where support can be given – particularly as the practicalities of the end of transition become clearer through next year.

Read ICAEW’s Brexit Checklist, outlining a variety of areas that could impact your business post Brexit, to help you prepare for when the transition period has ended.