Re-focusing on Brexit as we look to the future
The UK Government has confirmed that it will not request an extension to the Brexit transition period which ends on 31st December 2020 and negotiations towards a Free Trade Agreement with the European Union (EU) are ongoing. Although the first half of this year has brought other priorities it’s now time to return our attention to Brexit and the practical steps mid-market businesses can start to take to prepare for the future.
At the end of last year, the impact of Brexit on business was an issue that many were debating. Although December 2019 seems much more than half a year ago and the UK has officially left the EU, the impact of Brexit is very firmly back on the agenda.
So far in 2020, we have had other unforeseen priorities, which still need to be addressed, but it is now clear that, from 1 January, we will have new rules governing how we trade with the EU, even if we are not yet certain what those rules will be. To date there has been limited progress on trade negotiations between the UK and the EU, making a comprehensive UK-EU Free Trade Agreement (FTA) seem increasingly unlikely. Following the UK Government’s formal confirmation that it would not seek an extension of the Brexit transition period beyond 31 December 2020, meetings have taken place between the UK and EU with a commitment to intensify negotiations in July and there are rumours of some movement on both sides. However, even if a FTA is successfully negotiated before the end of this year, there is a real risk that it will not cover everything business might want and that will create additional reporting and compliance requirements for some British businesses.
For mid-market companies, having a team dedicated to Brexit planning is a luxury that most cannot afford. Even where a Brexit team is in place, how can planning be undertaken when the outcomes remain so uncertain? We believe that there are practical steps that businesses can take.
How will Brexit impact businesses?
We won’t know the specifics of this until we understand the terms of any trade agreements agreed by the UK with the EU and other nations around the world. It is obvious that there will be a direct impact on any trade of goods and services with EU countries. However, businesses should also consider whether their trading relationships with suppliers or clients in non-EU countries are currently governed by an EU trade agreement which will no longer be available to UK businesses after 31 December 2020 or indeed whether there might be completely new agreements covering those non-EU countries. It’s important to assess the level of exposure and potential risk as early as possible.
As a starting point, finance teams can interrogate their finance systems to get some indicators of the areas where the business may be impacted.
- What percentage of sales revenue and sales invoices relate to overseas clients?
- What percentage of the supply chain is based outside the UK?
- How much of the business activities relies on staff who are from the EU, or do staff need to regularly travel to EU countries for business purposes?
- These metrics will start to provide a picture of the practical implications that may lie ahead. If your business relies on non-UK clients or suppliers, then it’s important to have a clear understanding of the areas which could give rise to additional customs formalities or immigration and business regulation requirements.
What can you do about Brexit now?
With an unknown outcome and therefore unknown implications, it can be tempting to say, “there’s nothing we can do until we know the terms of a deal.” Right now, the details and compliance requirements might be unknown but the effect of them will be a predictable need to pull together information about your business transactions and provide clear evidence to the relevant authorities.
- Review your supply chain – even if your business isn’t reliant on overseas goods or services, one of your suppliers may be. Do you have a contingency plan if a critical component in your supply chain is delayed? Have you talked to your key suppliers about Brexit exposure?
- Talk to your overseas customers – just as you want to ensure that your supply chain won’t be interrupted, your customers will want to see the same from you and proactively demonstrating that you are planning for any Brexit implications will instil confidence.
- Consider your current finance information flows – do your current processes and systems allow you to quickly and easily analyse, filter and present sales and purchasing data? Post-Brexit customs requirements will rely on clean, traceable data that shows the origin of any goods or services.
For businesses that are importing or exporting goods, EY is offering customs training seminars which are an excellent starting point to explore the potential requirements that lie ahead. In addition, our recent Brexit webcast provides a broad overview of the current position including the likely immigration landscape.
With the post-Brexit world just five months away, it should be a priority to understand your potential exposure to any disruption, assess the ability of your finance systems to provide the data that will be required in the future, and to act now to mitigate your risks in either of these areas. In an uncertain world, the businesses that can react and adapt quickly will be best placed to face the future.