31 December 2020 marks the end of the transition period when the UK will leave the EU’s Single Market and Customs Union. The UK will begin a new economic relationship with the EU ‘ either with a trade deal (Free Trade Agreement or FTA) or reverting to World Trade Organization terms. With not much time to go and the UK Business Secretary urging businesses to take steps to prepare, there are a few key areas that SMEs and entrepreneurs need to consider in the final months ahead of the deadline if they are to mitigate the impact of potential changes.
Entrepreneurs and SMEs provide crucial contributions to the UK economy, through regional investment, new jobs, and innovative ideas. Many have continued to show resilience and adaptability in the fallout of COVID-19 through pivoting their goods and services and adjusting their business models to the challenging environment. Now faced with the added uncertainty of Brexit and the narrowing transition window, they need to take stock of the potential changes that could disrupt their business and take necessary action to ensure they are able to continue operating in the New Year.
To mitigate risks and fully take advantage of any opportunities that arise in the new trading environment post-transition period, successful SMEs and entrepreneurs will likely need to reassess their wider operating and trade models including supply chain, provision of services, workforce strategy, regulation and compliance and tax and finance.
Brexit may lead to delays at the border, impacting goods coming into the UK. The UK intends to phase its new processes in over six months, but the EU intends to treat the UK as a third country from 1 January. Significant disruptions to the UK’s port operations are expected, with the Eurotunnel and Dover impacted the most.
Some of the key actions to manage this potential disruption include: mapping out the movement of your goods from country of origin to the final destination; identifying who in your supply change manages the movement of your products and assessing whether they are prepared; identifying potential pressure points in your transport routes which present the biggest risk to delivery. Additionally, you should try to prioritise key customers and services as you may not be able to service all of your customer base as you might wish.
Trade in goods and customs
With the UK leaving the EU Customs Union, there will be additional customs formalities and checks. This will impact all goods coming into the UK, not just from the EU, and UK goods entering the EU.
Directly engage with your suppliers to define customs and borders roles and responsibilities so all parties involved have a clear understanding of the practicalities and the handovers in the chain to avoid unexpected costs and delays. From a cash perspective, run a rough calculation of your additional duty costs based, on the UK Global Tariff (for UK imports) and the EU Common External Tariff (for EU imports).
Trade in services
Services companies will have considerably less access to the EU Single Market under any FTA. Assessing the impact is critical and will need to be done imminently to allow time to adjust.
If you operate a service focused business, you should identify key staff who might be impacted by changing regulatory requirements and travel restrictions, and review EU Member State work requirements to understand changes to the types of services which can be delivered by business visitors.
You should also plan for disruptions arising from changes to your operating and legal structures that may be required to ensure the business can continue providing services to key markets, and plan out a budget for additional cost and time required for employees and the business to obtain new relevant professional qualifications, authorisations, licences or certifications from 1 January 2021.
Talent – workforce and people
The UK will have a new points-based immigration system from January. Provided they apply to the EU Settlement Scheme before 30 June 2021, EU and EEA citizens that are residents in the UK before 31 December 2020 will have a right to settle in the country. All businesses must consider their talent and mobility plans, and be prepared for restricted rights to work and changes to rules on business travel.
With people often being the greatest asset of a business, being aware of any potential pitfalls is essential. You should make sure any EU or EEA citizens working for you know about the EU Settlement Scheme, and how to apply if they wish, and familiarise yourself with the new ‘right to work’ checks that will apply if you take on EU or EEA citizens from 1 January.
Regulations and compliance
There is still a fair amount of uncertainty around what trade barriers might be in place between the UK and EU following the transition period. There could be new regulatory requirements, licencing obligations, conformity assessments and more. The extent and nature of the changes depend on the scope of any FTA as well as any unilateral measures made by each side in response to the resulting changes in the short-term.
Both a UK company trading in the EU and an EU company trading in the UK will need to identify actions to address changes regarding for example, product registration, labelling, certificates and testing. For example, you will need to determine if any of your products need re-certifying and testing by a notified body or safety assessor based in the EU or UK.
Tax and finance
The extent of certain tax changes will depend of the provisions of any FTA. However, there are several changes which will impact SMEs and entrepreneurs regardless of what is agreed between the UK and EU, including import VAT, lost of EU VAT simplifications which could result in new compliance obligations, changes to systems and reporting, and withholding tax.
Key steps to take here include analysing short- and medium-term cash flow and working capital requirements, registering for additional VAT obligations and updating your systems accordingly and preparing for changing VAT reporting and evidence requirements.
Less than two months to go
As we near the end of the Brexit transition period, entrepreneurs and SMEs falling behind on preparations must use the remaining time to get up to speed on the key areas that could impact their business and take immediate action where possible. Failure to do so could leave them vulnerable to potential disruptions and challenges come 1 January 2021.