Gerry Myton, Partner and Head of Indirect Tax at Streets Chartered Accountants, looks at what can be done now to prepare for Brexit, whatever form it may take.
As the uncertainty of Brexit marches on, it is important for SMEs to consider their strategy in approaching any emergent obstacles. In this piece, we will consider the issue of tariffs, the logic of stockpiling and potential measures you can implement to ease the transition.
The trouble with tariffs
There are reports that 80 to 90% of tariffs could be removed in a no-deal scenario. The Government has indicated that some sectors, such as motor, agriculture, and clothing, could retain their protection through import tariffs. If this is the case, then for those whose protection is removed, this could cause significant profitability issues as the margin they make includes that duty advantage over a foreign supplier.
This lack of clarity is also causing confidence problems. For example, to believe that Honda has announced it is ceasing production in Swindon for any reason other than Brexit is somewhat misguided. Risks are also present for other motor manufacturers such as Nissan, Toyota and even the production of BMW’s Mini.
This kind of uncertainty could cause further economic instability but for some, might prove positive: those who import raw materials and re-export goods may find themselves more competitive with reduced needs for certain customs approvals.
Stockpiling is something we are witnessing and should be considered by businesses who import from, and sell to, the EU27, especially where their imported/exported goods have a positive duty rate after Brexit.
Businesses are stockpiling up to eight week of goods at the moment to prepare. Everyone we have spoken to lately is buying more than they need. Buying without duty however, is not without its downsides: those stockpiling are likely to be eating into their once-healthy cash flows.
There are some matters that can be addressed now and others which can wait, but each business, irrespective of size, needs to have a plan to continue trading with the EU27 in the coming months.
The best advice we can currently give a business that trades to/from Europe is:
1) Get an Economic Operator Registration and Identification (EORI) number
2) Register for the Transitional Simplified Procedures, which reduce the administrative burden at the border
3) Map your supply chain and find your duty hotspot and take advice to determine what mitigation might be available
4) Review your terms of business and the incoterms you trade under.
To mitigate any potential problems it is important to understand your duty position post Brexit. You should assess the various customs authorisations to determine what might assist your business in order to counteract any adverse cash flow problems. Authorisations, such as customs warehousing, inward processing or outward processing, could work depending on individual circumstances. Authorised Economic Operator (AEO) status may work for some too.
At the present time, uncertainty still reigns. The coming weeks may prove decisive in determining the course of Brexit but we have been here before. Until more details are known, we will not be able to predict or look forward with much surety, however there are steps you can take to prepare.