Understanding possible changes to VAT and Customs Duty, managing supply chains and knowing your workforce requirements are the three areas that UK business should prioritise in the immediate months ahead in order to be best prepared for the new post-Brexit world, according to accountancy and advisory firm BDO.
While early indications suggest that the trading relationship between the UK and the EU will be discussed at the end of the negotiation period with an increasing likelihood of long transitional arrangements, businesses should already be starting to think about the potential impact harder borders, immigration restrictions and regulation changes may have on their business models.
Publishing its ‘Business Guide to Brexit’ on the anniversary of the EU referendum today, BDO highlights three ‘Brexit barriers’ that businesses must spend time now planning to overcome:
- VAT and Customs Duty: Leaving the EU is likely to involve leaving the EU Customs Union which currently allows trade among member states to flow tariff-free. UK business may also lose access to VAT simplifications such as the EU one stop shop mechanisms and triangulation. As a result businesses may need to file VAT returns monthly, bi-monthly or quarterly in up to 27 further countries. Businesses must check whether they have the right procedures in place to manage VAT administration and how much of their business is based on supplying and installing goods in other EU member states.
- Supply chain management: Many UK businesses that have built their business models on access to the EU single market will have complex EU supply chains involving cross-border movements of components and goods – often back and forth before sale. After Brexit, such cross-border movements are likely to trigger cumulative tax costs. The potential for new hard borders is also likely to introduce friction into the supply chain. The effects can be reduced by applying for Authorised Economic Operator status (a supply chain kite mark). Establishing an EU holding company for EU supply chain activities and sales within the EU may be appropriate for some businesses. For others, moving distinct operational activity may be required. All business restructuring plans should be based on a detailed analysis of the flow of goods invoices and cash after Brexit.
- Understanding your workforce: Brexit will create a raft of workforce issues. Post-Brexit the UK may no longer be covered by EU social security regulations, there may be extra compliance and reporting obligations for short term business visitors and cross-border pension schemes may no longer be governed by EU legislation. UK businesses should be reviewing their systems for tracking business travellers as well as pension schemes offered to those in a different EU member state.
As well as publishing the guide, BDO also called for the Government to take steps to ensure the UK economy is in the best possible position to thrive post-Brexit.
Latest BDO data suggests that currently we have a robust economic outlook with business optimism growing above the long-term trend and manufacturing confidence at a three year high. UK export growth is also performing strongly outstripping that of France and Germany for five consecutive quarters – although this could be under threat due to raw material cost inflation.
Despite the positive economic data, BDO is calling upon the Government to not take the resilience of UK business for granted. Instead, the accountancy firm wants policy makers to help create a ‘new economy’ by focusing on three key areas: making the most of the UK’s mid-sized entrepreneurial businesses, balancing growth by sector and by region and ensuring open and simple access to world markets and global talent.
Stuart Lisle, Tax Partner and Co-Chair of BDO’s Brexit Taskforce, said:
“Despite all the uncertainty surrounding Brexit there are areas that can be planned for now. UK businesses must grasp the nettle of Brexit and start reviewing their tax, administrative and workforce requirements in the months ahead. Waiting for a deal to be done will be too late.
“UK businesses have continued to do what they do best during the uncertainty of the last twelve months, focusing on growth and success. As we head into the Brexit negotiations with a far from stable domestic political situation, there are storm clouds on the horizon. It’s vital that the Government, whether due to the distraction of Brexit or a delicately balanced Parliament, doesn’t take the resilience of UK business for granted. It must focus on creating a business friendly landscape in the UK”.
