How to prepare your business for a no-deal Brexit
As negotiations continue between UK and EU leaders regarding any future trade deal between the two sides, the possibility of a no-deal looks increasingly likely. While an extension past the original Sunday deadline and the government’s promise they will do ‘everything’ they can has given many a glimmer of hope that an agreement can be reached, Prime Minister Boris Johnson has stated no-deal still seems the most realistic outcome.
With now just two weeks until the EU transition period comes to an end and changes come into place – regardless of whether a deal has been negotiated or not – there is limited time for businesses to prepare. However, doing so is fundamental to minimising the disruption your operations face in the new year – particularly after a year where many enterprises have experienced the unwanted challenges from COVID-19.
In our blog, we have outlined what businesses will need to do to get ready for a no-deal Brexit and the implications any trade deal with the EU may have, as well as the impact they can expect in January 2021.
- Have the right protocol in place
- Understand the impact of border checks on your orders and supplies
- Account for new tariffs
- Prepare for supply chain disruption
- Changes to regulation
- Review the new immigration policy
Have the right protocol in place
At this stage in the game, you should have already begun to implement the appropriate measures to allow your business to operate smoothly in 2021. This could include applying for trade licences, appointing a customs official, getting an EORI number or communicating the new processes with your staff.
If you haven’t already put measures in place, you must do so as soon as possible. This means first understanding the requirements of your operations – such as whether you intend to import, export or recruit staff from abroad. The protocol you need to follow may vary depending on your industry and the services you provide, so be sure to check government guidance to understand what you need to do precisely. You may also wish to utilise additional support to help you understand the impact.
Some requirements, such as applying for licences and documentation, will need to be done urgently. For some, the deadline may have already passed for acquiring the right information ahead of 31st December. In this case, you should act now to ensure you can still get the documents you need as early as possible in the new year to avoid further disruption.
It is worth noting that you need to have these protocols in place regardless of any deal the UK and EU do or do not agree, making it even more essential to have the adequate processes ready for 1st January.
Understand the impact of border checks on your orders and supplies
Even if a deal were agreed, the UK would still be leaving the EU single market. As a result, there will no longer be the free movement of goods between the two sides, with border checks now required on any goods moving from one area to the other. There is some fear that a no-deal would lead to stricter checks, meaning companies need to be extra vigilant. In any scenario, border rules will still need to be adhered to.
Due to the requirement for border checks, there is an increased risk that goods will take longer to reach their intended destination or even fail to be allowed across the border at all. This could lead to disruption both for you getting supplies from abroad and for your overseas customers awaiting orders from you.
To reduce the risk to your exports and imports, it is essential to ensure you are following the relevant guidelines for your products. This includes understanding what documentation you need to have to accompany your goods, filling in customs declarations for every shipment, having adequate labelling and making sure your goods comply with checks.
As things currently stand, full border checks will be applicable on the UK goods entering the EU from 1st January, so you need to make sure you are adhering to the rules straight away. EU exports entering the UK will be checked on a phased approach, with full reviews not coming into action until July 2021. Products of animal origin will be subject to checks from April.
While there are concerns of border disruption already, following the guidelines will help you to minimise this for your business and adjust to the long-term processes for importing and exporting once the settling period has passed.
Account for new tariffs
With a no-deal scenario, the EU and UK will automatically enter into World Trade Organisation (WTO) terms from the 1st January. Under WTO rules, both the UK and EU will have tariffs they apply to any imports entering their countries, and the suppliers of these goods will need to account for those tariffs.
The UK has introduced the UK Global Tariff on specific goods, meaning that EU businesses exporting applicable products to the UK will need to pay the tariff (the rate of which will vary). As a result, prices may increase for UK buyers. It is worth noting that some goods may actually see their tariffs reduced to zero, such as yeast and roses.
Similarly, UK businesses exporting to the EU will have to pay new tariffs. The average tax is 2.8% on non-agricultural products, but dairy and confectionery goods can have a tariff of up to 37.5%. So, businesses exporting such products are likely to see their costs increased, translating to higher prices for their customers. It may even cause trade to fall if overseas customers choose to switch to other suppliers who can offer a lower price.
It is crucial to review the WTO tariffs if they apply to your business and determine if your exports will increase in price, and by how much. Once you have identified this, you will need to account for the changes in your financial planning and, where necessary, communicate with customers if prices are going to rise.
If a deal were to be agreed with the EU, it is likely that any tariffs applied would be less than those dictated by WTO terms and may even be zero on the majority of products. In this case, there may be less impact on cost for UK and EU businesses, though the new trade processes would still stand.
Prepare for supply chain disruption
As we have already touched upon, the introduction of tariffs (in a no-deal scenario) and border checks are likely to result in disruption to your supplies, including shortages of certain products. While businesses who import and export may expect this, it is worth noting that even those who do not actively trade may experience disruption as knock-on effects on the supply chain begin to emerge.
This disruption will be particularly present in the initial days after the EU transition period, as both sides settle into border checks and customs declarations. As a result, there is a good chance that delivery times will be delayed, and prices increased compared to pre-Brexit times. Companies must, therefore adapt to the ‘new normal’ and adjust their strategies accordingly.
If you are unable to cope with increased prices or delivery delays from your suppliers in the new year, you may choose to shop around to see if you can get a better deal elsewhere. If you are working with EU suppliers, this may mean switching to domestic providers in the UK or utilising trade with countries that the government has agreed on a deal with to keep prices lower and deliveries moving.
Similarly, if you are experiencing this disruption, you need to be prepared for unhappy customers and have contingencies in place to keep them on board or find alternative business elsewhere.
Changes to regulation
The possibility of a no-deal Brexit has left questions regarding regulation in several areas.
One such area is GDPR, which is currently dictated by EU legislation. Much of this will be underpinned in UK law from 2021, meaning that companies can generally continue under the processes they already have. However, the difficulty lay in the transfer of data between the two sides after Brexit. We are awaiting an adequacy ruling from the EU, which will determine whether data can be passed or whether additional requirements are required. It is worth checking the ICO for updates regarding this in the coming days.
Food standards will also be affected in the event of a no-deal Brexit, as the UK will need to EU approval that our food standards are adequate. Without this, businesses may struggle to sell food products to EU markets. Regardless of any deal, companies will need to adhere to strict legislation around labelling, health marks and trade to make sure their goods are accepted when being exported to the EU. If a trade deal is negotiated, it may include a promise that either UK producers follow EU standards or that the EU will accept goods in line with UK protocol.
Another area due to be affected is financial services and the export of these to the EU, with a decision awaited as to whether the EU will accept these. This is due to the UK no longer being in the single market, leaving questions as to how these can legally be provided and regulated in the EU. In a no-deal context, where there has been no agreement about the export of financial services, it is likely to make it harder for companies to provide financial services in the EU. Such businesses may need to adhere to strict rules or focus on non-EU audiences to fill the gap in demand. Most have even set up EU-based offices to allow services to continue unaffected.
Review the new immigration policy
A new immigration system will apply in the UK from 1st January 2021, and this happens regardless of whether a deal is done with the EU or not. It is worth reminding yourself of the potential ramifications for your business, if you employ workers who originate from outside the UK.
Anyone wishing to move to and work in the UK from 2021 will need to be deemed a ‘skilled worker’ and clear a 70-point threshold. Under the points system, you need to speak adequate English and have a salary of at least £20,480. So, employers will need to adapt their vacancies to allow people to gain the points they need to enter the UK, which may mean offering higher salaries than previously. You may also need to apply for a Sponsor Licence to provide sponsored job offers.
If you currently employ EU staff, they need to apply under the EU Settlement Scheme before 30th June 2021 to guarantee their right to remain in the UK. So, you should make sure they have the information regarding this scheme to assist their application if they wish to do so.
There are now just days left until a no-deal Brexit could become a reality. With the Christmas holidays coming up, time is even more of the essence to prepare your operations and staff.
If you need support in understanding the impact your business may face once the EU transition period comes to ends, we are here to help. Our team of advisors have expertise across many Brexit topics, including trade and employments so that we can provide tailored guidance for you.
We will also be available over the Christmas period to provide last-minute advice as the outcome of a deal emerges. It is also advised that you follow government updates.