Preparing for a no-deal Brexit
As a UK business trading with one or more of the other 27 EU countries, how can you prepare for a no-deal scenario, which remains a possibility? Below are a few practical tips that may serve as an initial step towards a no-deal-Brexit preparation plan. If you already have a plan in place, you can use the 20 points below as a checklist to make sure you have everything covered.
- If your business has no experience with import and export procedures with ‘third countries’ (countries outside the EU), then make sure your staff get the necessary training and contact a customs agent who can carry out the required import and export formalities for you, since intra-EU rules will no longer apply as between the UK and the EU 27 immediately Brexit happens.
- Do you already have an Economic Operator Registration and Identification (EORI) number? Any UK person importing goods from or exporting goods to EU countries will be required to have a UK EORI number and may also need an EU EORI number.
- Do you know the correct commodity code for all your products?
- Do you know the origin of your products, i.e. according to the customs rules of origin?
- If you are exporting, are you able to provide your customer with a commercial invoice for their customs clearance at their request?
- You must modify your VAT reporting system so that EU 27 customers and suppliers are no longer identified as ‘intra-Community’. Make sure that the required modifications are performed correctly. A credit note issued to an EU 27 customer after Brexit day for a discount relating to a delivery made before Brexit day will still be an intra-Community credit note. Furthermore, don’t forget to chart the impact on other invoice streams. For instance: the VAT scheme relating to invoices of carrier companies transporting your goods to the EU 27 will also change. Bookkeepers and IT staff will have a hard time making sure that all the changes are implemented at the point of Brexit. It would seem a good idea not to send any invoices to EU 27 customers in the days immediately following Brexit day.
- If you have already incurred VAT that can be recovered through the EU Directive for VAT Refunds (‘the Eighth Directive’), you should act on it as soon as possible, as in the event of a no-deal Brexit, starting immediately after Brexit, the Eighth Directive will no longer apply to VAT refunds to UK businesses, which will have to use the so-called ‘Thirteenth Directive’ procedure.
- Check which Incoterms you use to sell goods to EU 27 customers and adjust them as necessary for any quotes you will be sending out as from today. Adjust your quotes for additional costs to be incurred post-Brexit, such as export or import formalities and customs duties.
- Allow for considerably longer delivery periods to and from EU27 countries. If necessary, include additional resolutive conditions for perishable goods in your terms and conditions.
- Check which currency (sterling, euros or other local EU27 currency) would the best option for invoicing to EU 27 customers: a no-deal Brexit may well produce considerable currency fluctuations.
- Have you been placing larger-than-normal orders with your EU 27 suppliers? The UK Government has been encouraging UK businesses to make sure that they have additional supplies over and above their usual buffer stocks prior to Brexit, where possible and appropriate.
- Check the impact of the customs duties to be imposed on both imports and exports – is your product in its current format still sellable in the EU 27 after the imposition of import duties? Have you checked the import duties that may become due based on the WTO tariffs?
- Supplies including installation in an EU 27 country must be reassessed for VAT and customs duties.
- Sales from EU 27 call-off stock and purchases in consignments from EU 27 suppliers must be reassessed for VAT and customs duties.
- Cross-border contract work involving an EU 27 country must be reassessed for VAT and customs duties.
- If your business involves regular imports from EU 27 countries, you may want to consider opting for postponed VAT accounting, which will allow you to account for import VAT in your regular VAT return.
- Triangulation (ABC) transactions involving the transportation of goods to or from the EU 27 must be reassessed for VAT and customs duties.
- Web shops selling products to EU 27 private consumers (B2C) must review their VAT processing.
- Moving excise goods between the UK and EU 27 countries will no longer be possible under the Excise Movement and Control System (EMCS).
- Businesses selling digital services to EU 27 private consumers will no longer be able to use the UK’s Mini One Stop Shop (MOSS) scheme to declare VAT. Instead, they will have to register for the Non-Union MOSS scheme in an EU 27 country. They must do so no later than the 10th day of the month following a sale.
These are just some of the issues to consider and is no more than an initial guide. Each business will have to assess the consequences of a no-deal Brexit to their specific activity and prepare a no-deal Brexit plan.
What if a Brexit deal is reached after all?
In such a case, there will be a transition period, which will probably run at least until the end of 2020, but which could be extended after that. The intention would be to reach an agreement on the future trade relations between the UK and the EU 27 during the transition period. The negotiations about the conditions of such a free-trade agreement have yet to start.
Failure to reach an EU-UK agreement will trigger the ‘backstop’, under which Northern Ireland will remain aligned with the EU single market, while the remainder of the UK will be coupled to Northern Ireland (hence also to the EU) via a customs union. This would avoid the creation of an EU external border between Ireland and Northern Ireland. In this scenario, customs formalities would still have to be fulfilled in goods transactions with the EU 27 (including Ireland), but no customs duties would be due.
Anyone who has regular transactions involving EU 27 suppliers or customers must put Brexit at the top of their list of priorities and prepare a concrete no-deal-Brexit plan.
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