With less than six months to go until the UK’s withdrawal from the European Union, businesses throughout Europe are gearing up to ensure the continuing fluidity of their supply chains.
However, with no definitive answer as to the form ‘Brexit’ will actually take, it is proving difficult for businesses to make solid plans as to their future.
So, what exactly has happened since the referendum? And what are the potential outcomes from ‘Brexit’ and the effect that these could have on trade between the EU and the UK once the UK leaves?
It’s hard to believe, but it has been nearly six years since the initial announcement from the then Prime Minister, David Cameron, of his support for holding a referendum of the UK’s membership of the EU.
In June 2016, the UK referendum was held and the results announced – A narrow victory for the ‘Brexit’ campaign of 51.9% against / 48.1% remain led to the beginning of a new future for the UK.
Immediately following the referendum David Cameron announced his resignation. In mid-July Theresa May took over the reins of PM.
Article 50 is triggered, marking the beginning of the process for the UK leaving the EU.
Months of work have thus far led to provisional agreements having been made between the UK and EU on financial payments due to the EU, and ex-pat citizens living in the respective nations.
It has also been agreed that, following ‘Brexit’ there will be a 21 month ‘transition period’ to assist in a smooth parting. (Although following a summit of EU leaders in Brussels on the 17 October 2018, Prime Minister Theresa May hinted that the UK could extend the Brexit transition period to allow for more time for talks).
The UK Government has set out a plan as to how it foresees relations developing beyond ‘Brexit’ although there has been criticism of the plan from various personalities within the UK political parties and from the EU.
With very little word available to the wider public as to the content of the UK plan, on the 23 August the Government published a series of notices setting out further detail on what could be the outcome should the UK leave the EU without a deal, with the intention of enabling businesses to make preparations. These notices have led to much speculation that the UK will not reach a deal with the EU.
So, what next?
In order to enable the UK to leave the EU, an official, legally binding Withdrawal Agreement plan is required. The EU Chief Negotiator has said that negotiations must be with the EU states by the end of October in order to allow the remaining 27 EU countries time to sign off the deal.
The UK will leave the EU at 23:00 GMT, entering into a transition period of 21 months, on the basis the UK and EU reach a deal.
During the transition period, the UK will have no say in EU policy, and at the end of December 2020, the UK will part ways entirely from the EU.
There is an ever increasing fear of the prospect of a no deal agreement following the release of the ‘no deal’ guidance papers issued by the government.
Even if a deal is reached, there is likely to be an element of change that impacts trade between the UK and EU. The extent of this change could vary dramatically depending on the deal struck.
Theoretically, there are three main scenarios facing UK businesses trading with the EU come ‘Brexit’ – Those are that trade between the EU and UK will continue as present, a bespoke deal of a facilitated customs arrangement with common rules is reached, or, the most extreme case scenario, that ‘no deal’ is reached. If no deal is reached, the UK will trade with the EU on a third–country basis, whereby trade with the EU will be on non-preferential, World Trade Organisation terms, until such a time as a preferential trading agreement can be established.
This extract from the Government’s guidance notices emphasise the uncertainty faced, and does not rule out the prospect of a no deal:
For 2 years, the government has been implementing a significant programme of work to ensure the UK will be ready from day 1 in all scenarios, including a potential ‘no deal’ outcome in March 2019.
It has always been the case that as we get nearer to March 2019, preparations for a no deal scenario would have to be accelerated. Such an acceleration does not reflect an increased likelihood of a ‘no deal’ outcome. Rather it is about ensuring our plans are in place in the unlikely scenario that they need to be relied upon.
With no agreement in place, EU goods will be treated the same as goods from elsewhere in the World. This could result in additional costs and extended delivery times for importers and exporters to the EU.
For goodsentering the UK from the EU an import declaration will be required, customs checks may be carried out and any customs duties and VAT must be paid.
Similarly, for any goods exiting the UK to the EU, an export declaration will be required, customs checks may be carried out and any customs duties must be paid.
Potentially, additional paperwork may also be required, such as import or export licences. For example, under CITES, species listed in Annexes B - D are currently freely moved and traded between the UK and the EU. If the UK leaves the EU without a deal, these species would require a CITES permit or import/export notification.
It’s key to note, it will not just be UK businesses that would feel the impact of a ‘no deal’ scenario but our counterparts throughout the EU also face the prospect of any additional Customs Clearance procedures. With free movement of goods throughout the EU not being subject to Customs clearance since 1993, there is a shortage of operatives across all European states who will be able to undertake the clearance processes required.
Indeed, it has been announced that France intend to recruit 700 additional Customs officers in preparation for a hard Brexit.
To help make the process as smooth as possible, we have compiled a key checklist of considerations companies should make to prepare for the potential changes…
What tariff classifications (commodity codes) are applicable for the goods you import / export?
Precisely whether the UK will maintain the EU EORI system or the UK will introduce its own is not clear. What is clear however, is that if your business is involved in the import or export of commercial goods you will require an EORI (Economic Operator Registration Identification) number, irrespective of the mode of transport being used to move your goods from one place to another.
Whether importing or exporting goods, you should consider incorporating Incoterms into sales contracts, to define responsibilities for processes and costs between the consignee and shipper.
Whilst goods can currently move freely throughout the EU, it is possible that, if new Customs regulations are introduced, goods that were previously not subject to licences could become so. Many goods that are freely imported and exported throughout the UK and EU are subject to licences when being transported from outside of the EU, such as those listed in the above CITES programme.
Goods imported and exported throughout the EU are currently not subject to duties and VAT as goods are transported throughout the EU with ‘free movement.’ Should the UK and EU fail to reach a deal however, it is possible such tariffs could be applied.
Whilst there is still a great deal of uncertainty as to what the outcome will be with regards to trade once the UK leaves the EU, appointing an experienced freight forwarder such as Velta can help you to a smoother sailing through the Brexit transition.
Should new regulations be put into place, there are a number of Customs processes which could be advantageous for your business in improving cash flow and stock availability, all of which we can assist you with.
Velta are AEO(C) accredited, providing us (and our clients!) access to all of the benefits available under the AEO accreditation.
Goods that are transported under our AEO status are subject to fewer physical and documentation checks, enabling a smoother transition through international borders.
With this being the case, even if a Customs agreement cannot be reached between the UK and the EU, goods imported into the UK from EU countries under AEO status should experience a quicker clearance than those being imported by companies who do not hold the accreditation. Similarly exporters are likely to experience a smoother transition of their goods from the UK into the EU, with the potential for clearance of goods whilst in transit for both imported and exported items.
Currently import duty and VAT are not applicable on imports from the EU. But if a deal cannot be reached, this could be set to change. By taking advantage of our bonded warehousing status your business can avoid paying out import duty and VAT on your consignments until absolutely necessary. This can enable you to retain 30% of the value of your stock, or even more in some cases, enabling you invest in more stock to fulfil more orders and generate more income, or provide you with savings to put in the bank to ensure funding is available for your business when required.
You may also find it beneficial to utilise Customs simplified procedures.
If duties become applicable on EU imports, under CFSP you will be able to import goods for distribution in the UK and defer duty and VAT payments until stock is sold. You then pay import duty and VAT on an item-by item basis in the month after each item is sold.
Stock is immediately available for dispatch and company cash flow can be increased as no import duty is payable against stock that remains in storage. It also means you never pay duty on sales outside the EU.
CFSP can also be beneficial in the transportation process, in providing an accelerated release of goods through the completion of a Simplified Frontier Declaration (SFD). Great news if you need your goods that little bit faster!
Our knowledgeable team are well versed in international trade and are able to offer solutions to improve efficiency and decrease costs within your supply chain. What’s more, our in-house Customs team are on hand should additional declarations be required on goods into and out of the EU to the UK, whether that be via road, air, sea or rail.
Irrespective of the outcome of Brexit in regards to trade, we will be able to assist you!