Brexit: what did experts get right?
27 January 2021: At ICAEW’s East of England Summit, a panel of experts discussed what might happen once the transition period ended, with topics ranging from Rules of Origin, Delivered Duty Paid terms and VAT changes.
As the transition period came to an end with 2020, businesses were still dealing with the challenges of COVID-19. Brexit was a spectre that people tried to ignore, particularly as so much was uncertain.
Mike Chapman, a trade business adviser with the Suffolk Chambers of Commerce, oversaw a survey in October in which more than 50% of businesses in the region said they were prepared to the best of their ability, while 26% said they were wholly unprepared.
Rules of Origin
While this was promising, the level of uncertainty at the time meant that there were a lot of gaps in preparation. “They are calling out for greater clarity and detail,” Chapman said back in December, at ICAEW’s East of England Economic Summit. “There are still some missing parts of the jigsaw; Rules of Origin, what's happening with food labelling for Northern Ireland, etc.”
Some clarity was provided by the Trade and Cooperation Agreement (TCA) on Christmas Eve, but as Chapman suggested, Rules of Origin have become one of the biggest issues that businesses have faced since the transition period ended, with Northern Ireland, which is still part of the Single Market, bearing the brunt of those complications.
The lack of any information regarding services is also a concern for Chapman. “We definitely need some more clarity. We really need to try to bottom out some of these issues, particularly questions that we're getting from the service sector, which include: how do we understand regulation within a member state? Do we need to have a fiscal representative? Do we actually have to have a physical presence? What about mutual recognition of professional qualifications? Can we travel? Can we actually undertake our professions in the European Union, and vice versa? What about access to talent and mobility?
As we are unlikely to see any more progress on an agreement for services until March, service-based companies are in limbo, to an extent.
From a ports perspective, it hasn’t been as bad as it could have been, but data from the Chartered Institute of Procurement & Supply reveals that lorry drivers are spending between 3% and 5% longer at the border, which is a particular issue for importers and exporters of perishable goods.
Delivered Duty Paid terms
Paul Davies, head of corporate affairs at Hutchison Ports, told the Summit that one of the biggest issues was a lack of understanding around terms of trade. “It’s quite likely that there are still some people that don't even know if they're actually an importer or an exporter at the moment.”
If you’re buying and selling goods within Europe, the majority is delivered on Delivered Duty Paid terms. This puts the responsibility on the seller to deliver goods to the buyer and deal with all procedures and processes up to that point.
“So if your business is in the East of England and you're selling it to Germany, and you're selling DDP, delivered duty paid, you might know that you're an exporter, but you might not realise you're also an importer to Europe. At that point, if you're selling on those terms of trade, the European import declaration is also your responsibility.”
Microbusinesses in particular had problems preparing for the change before the transition period ended. In particular, VAT changes have been an issue for those businesses, as Alan Todd, the Federation of Small Businesses’ East of England regional policy lead, predicted. “I think the VAT implications are just mind-blowing for lots of small businesses. That's where the accountancy profession can certainly help a lot of our members.”
It is the paperwork and administration itself that has proved to be one of the biggest and most costly headaches for businesses this month. The Institute of Directors’ (IoD) East of England Chair Biplab Rakshi said that the change in documentation requirements were ‘mind-boggling’ for many businesses.
“It's okay going through UK customs, which we have some sort of oversight over. But what about the other side? That's where the issue is. That's what we are contemplating; the big picture issues. Not just what's happening today, but the long term view.”
With businesses dealing with COVID and Brexit at the same time, the challenge of adaptation is much more complicated. COVID will not go away any time soon, so the answer, to an extent, is for businesses to let go a little, says Rakshi. “Concentrate on the things that are under your control, such as contractual relationships, where there are clauses in there that say it is under EU guidance or UK law. It’s perhaps understanding those and possibly renegotiating and innovating around that into new terms that reflect our reality.”
Find a range of resources to help you navigate the impact of Brexit with ICAEW’s dedicated Brexit Hub.
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