trade shipping

Whether there is to be a soft or hard border in Ireland or a soft or hard Brexit, one thing we do know is that “Brexit means Brexit” (!!) and that there will be a very large divorce bill……! The impact of Brexit on trade is a major issue for many businesses.

Given the constant political charade, it is likely to be sometime before we have any idea of what the trade talks might bring (or even when they will start), but one thing is clear, businesses will not have any certainty for a long time and so should plan for the worse, even if they hope for the best.

Trade Agreements

Any eventual outcome will, of course, be a political compromise, but it is likely that tariffs will increase, particularly for food exports to the EU, and there will be delays at Customs on processing any necessary paperwork.
Further, John Thompson has already contradicted the government and has advised that HMRC may take up to 7 years to deliver the changes needed to its IT systems to cope with changes to the Customs process.

Businesses only trading with the EU may end up dealing with Customs for the first time: this will bring added risks and complications, and they might want to consider spreading their export risk.

Businesses already trading outside of the EU should be aware of the tariffs with those other countries in the likely event that the current World Trade Organisation tariffs agreed via the EU will cease.

Double Tax Agreements

Tax agents will have to familiarise themselves with the DTAs for each country but ignoring any EU treaty overrides. National insurance costs are also likely to increase as the EU social security agreement would fall away.

Customs Duties

At present, Customs Duty is almost entirely governed by EU Directives and Regulations, with duty rates being set at EU level. Any solution is likely to be a political compromise and the fall back is likely to be WTO duties which, although might not be outrageous, might put the UK at a competitive disadvantage with the EU. Increased compliance costs are likely to be inevitable and some businesses might want to subcontract compliance to freight forwarders, but will still retain overall responsibility for this burden.

Finally, EU agreements with non-EU countries are likely to fall away, possibly leaving the UK exposed and needing to negotiate new treaties, which might make any Brexit progress to date seem very quick.

Vat

VAT currently accounts for about 35% of the UK tax take and so rates are our VAT rules are unlikely to change much. There may be some scope for extending some zero rated items but only if they come at a low cost.

Import VAT might be charged on EU imports which, although recoverable, will have a cash flow impact, and certain sectors are likely to be radically changed such as the possible
removal of the TOMS system for the travel sector, with suppliers of e-services having to register in at least one EU state to access the EU MOSS.

Corporation Tax

November’s Budget made no reference to the proposal for corporation tax to reduce to 17% from 2020 although this is likely to go ahead, particularly if Trump’s proposal to cut US corporate taxes succeeds. Changes might include a reintroduction to tax rules held contrary to EU law; stricter anti-avoidance measures UK companies might apply and there may also be the possible cessation of loss relief for EU group companies.

The impact of Brexit on trade. Conclusions?

Despite the lack of clarity (or even the start of the trade talks!), it is clear that businesses should consider the possible impact of Brexit and should review current contracts as well as putting careful consideration in to contracts that are currently being negotiated.

Other non-exhaustive questions businesses might ask themselves include:

• What might the impact of higher tariffs be?

• Who will pay for these higher tariffs? My suppliers, customers or me?

• Will my delivery dates be affected if it takes longer to get my goods to my customers?

• Will be delivery dates be affected if it takes longer for my materials to reach me from my suppliers?

• Will I be in breach of any contractual delivery dates?

• What happens if my goods are perishable and it takes longer to process them?

• Will my lead times be affected?

• What impact will this have on my customer expectations and any current contractual terms?

• Do my contracts provide for price flexibility?

• Will my contract fail if we do come out of the EU?

• Can my business cope with unexpected delays or will I need to consider more flexible working arrangements?

Whilst definite answers to the above may not be known for some time, and you might prefer not to think about Brexit too much, it would be advisable for Brexit to be kept very much in mind and for the above to form at least
the starting point for future plans. If you would like help on any scenario planning around the impact of Brexit on trade, please do get in touch.

 

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