9 minute read 16 Dec 2020
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Brexit: Readiness guide for businesses with 15 days to go

By EY UK

Multidisciplinary professional services organisation

9 minute read 16 Dec 2020

Final considerations before the end of the transition period.

In brief
  • UK-EU talks on the future trade and economic relationship continue. The only deadline is 31 December 2020.
  • Tariffs aside, for most businesses, most of the changes are known and set to take effect regardless of negotiation outcomes.
  • Adapting to the new environment will be a long term process but actions taken now could ensure businesses continue to operate beyond Brexit. 

UK-EU trade deal negotiations continue with a commitment to “go the extra mile” to break the deadlock. A new deadline for a decision on progress has not been set and there are questions around how a deal could be ratified in time, particularly on the EU-side. For the purposes of business planning, the key pillars remain:

  • Plan on the basis of legal certainty. The Brexit transition period will end at 23:00 GMT on Thursday 31 December. If no deal is in place, the UK and EU’s trading relationship will be on the basis of terms set out by the World Trade Organization (WTO). Under WTO rules, tariffs would automatically apply to goods traded between the two parties.

  • Accept that change is now inevitable. Aside from tariffs, the majority of regulatory changes triggered by Brexit are ‘deal agnostic’ thus will apply even if a deal is reached. Changes will be needed to almost all business functions and include border bureaucracy, a new immigration system, non-tariff requirements (e.g., licensing and markings), contracts, tax compliance, data systems etc.

  • Expect significant disruption. Irrespective of a deal, the scale and breadth of simultaneous changes will challenge ‘business as usual’ for many organisations. As set out by the Government’s Reasonable Worst Case Scenario, border delays will be a tangible example. New processes which are still being tested (e.g., HMRC’s Goods Vehicle Movement Service only goes live on 23 December) and lack of readiness, particularly amongst smaller business, to use these systems will compound issues throughout supply chains.
     
  • Adapting will be a process. This guide provides a checklist of key commercial actions for businesses to consider putting in motion before the end of the transition period. The reality is that many of the changes will be needed into 2021 or require wider operating model transformation. 

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Top five actions with 15 days to go

  1. Appoint a day one response team to include representatives from all the impacted business functions including supply chain, procurement, HR, legal and IT. Be sure to include appropriate cover over the holiday period with relevant contact details and planning rota.

  2. Communicate with your priority customers and suppliers on any expected Brexit impacts on your business and understand their positions. Appoint appropriate contact points within your business for those customers and suppliers which can be reached over the holiday period.

  3. Apply for relevant EORI numbers/VAT registrations in Great Britain, EU and Northern Ireland. These will be crucial to being able to complete the necessary customs procedures.

  4. Closely monitor the impact of Brexit on your cost base. Prepare to reassess operations which may become unprofitable and quickly revise your pricing models.

  5. Collate a priority checklist of regulatory requirements (including registrations, labelling and markings) required for shipments of products due to arrive after 31 December 2020. Be aware of the risks of non-compliance and implement changes needed. 
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    Brexit: 15 days to go

    Supply chain

    Priority action: Finalize strategies for critical inbound/outbound transport routes that may give rise to logistical pressure points for your key goods flows. These routes will most likely present the highest risk for delayed and disrupted deliveries.

     Key actions for supply chain

    • Ensure that those in your supply chain with responsibility for goods movements are prepared (e.g., INCOTERMS which determine who would be the importer/exporter). Remember that your business might still encounter commercial pressures due to increased costs even if you are not the direct importer or exporter.
    • Formalize necessary inbound/outbound shipments due around Brexit cut-off dates and test infrastructure for end-to-end visibility and closer monitoring of the flow of these goods.
    • Finalize and communicate risk mitigation strategies — such as rescheduling or alternate transport options as well as contingency plans for up and downstream supply chain disruption.
    • Finalize prioritization of service provision and communicate with key customers, recognizing that you may not be able to service all of your customer base as you might wish.
    • Finalize and plan for activation of a ‘control tower’ to oversee supply chain operations in the run up to 31 December 2020, providing an early warning system to deal with possible disruptions.
    • Assess your cost implications based on the latest information, and define or adjust cost containment strategies and interventions.

    Key contacts 

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    Brexit: 15 days to go

    Trade in goods and customs

    Priority action: Identify goods flows critical to the continuity of your business and then establish your border responsibilities on a per flow basis. Confirm that all necessary registrations and/or authorizations are in place, you have the master and transactional data you need, e.g., tariff classifications, and you understand how you will meet those requirements operationally.

    Key actions for trade in goods and customs

    • Where your business is responsible for imports into Great Britain (GB) for those critical flows, determine the applicability of the staged customs arrangements announced by the UK Government that may offer you more time to fully prepare.
    • When clear on what you need to do and by when you need to do it, directly engage with your supply chain stakeholders to define customs and borders roles and responsibilities to ensure a clear, common understanding of the practicalities and the handovers in the chain to avoid unexpected disruption.
    • If duty costs may impact your business continuity, complete a duty impact and mitigation assessment based on the UK Global Tariff for UK imports, and EU Common External Tariff for EU imports.
    • Ensure customs brokers are in place where you are required to be the importer and/or exporter.
    For all businesses moving goods between the UK and EU:
    • At a defined weekly point before 31 December, review customs plans and mitigations against the latest government guidance, both in the EU and UK.
    • To facilitate rapid intervention on customs problems, develop and document catch-all procedures to manage unplanned or unplannable issues, including defined escalation paths and supporting collateral with appropriate controls, e.g., a manually editable customs invoice format outside of the ERP system.
    • Aligned with your supply chain ‘control tower,’ form a customs cutover team and establish early warning indicators to resolve issues before they necessitate the direct involvement of customs authorities.
    • Plan customs support and procedures to match with commercial cutover plans for ’day one,’ including goods in transit.

    Key contacts 

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    Trade in services

    Priority action: Identify any immediate authorizations or licences required to continue providing services after 31 December 2020.

    Key actions for trade in services

    • Assess critical services against identified restrictions, for example on establishment.
    • Identify key staff who will be most immediately impacted by changing regulatory requirements and travel restrictions, such as those who will be providing services over the end of the transition period.
    • Identify key services, in terms of both suppliers and customers, that will need to continue immediately after 31 December 2020 and prioritize preparations for these.
    • Plan for potential disruptions due to any operating/legal structure changes required to ensure your business can continue to provide services into your key markets.
    • Budget for additional cost and time required for your employees or your business to obtain any new relevant professional qualifications, authorizations, licences or certifications after 31 December 2020.
    • Engage with priority customers to understand immediate concerns on continuity of service provision and manage expectations.

    Key contacts 

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    Talent — workforce and people

    Priority action: Ensure your travelers, remote workers, and business stakeholders understand both the vastly different travel landscape after 31 December 2020 from an immigration and pandemic restrictions perspective.

    Key actions for workforce and people

    Immediate actions:

    • Support EU (in UK) and UK (in EU) employees in complying with the applicable immigration registration and legal requirements.
    • Ensure increased cost is built into financial planning for 2021 — impact will hit immediately.
    • Ensure A1 certificates extensions into 2021 are in place before 31 December 2020 and monitor ongoing developments on social security cooperation.
    • Brexit-prepare your cross-border remote work/‘work anywhere’ models. Brexit will straddle the holiday period — businesses must communicate the different rules that apply on either side of 31 December 2020.

    Focus on long-term mitigation through strategic workforce planning, including:

    • Workforce risk analysis identifying any key personnel or material numbers of employees, where talent retention/mobility is at risk.
    • Alternative workforce supply models.
    • Strategic immigration solutions.
    • Feasibility of expediting any recruitment of key roles or talent moves before 31 December 2020 — there is still time if you act now.
    • Ensure adequate right to work checking is in place that ‘lean-in’ to available government flexibilities.

    Key contacts

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    Regulations and compliance

    Priority action: Identify day one changes to your compliance obligations under product safety and similar legislation, particularly for UK trade into the EU.

    Key actions for regulations and compliance

    For all UK businesses trading in the EU:

    • Product registration — if your finished product, intermediate product or raw material registrations for EU markets need to be held by an EU/UK entity, ensure transfer is actioned before 31 December 2020. Many EU systems will be closed to UK participants after 31 December.
    • Product labelling — many product labels will need amending to identify the correct EU established importer or authorized representative after 31 December 2020. Check who this will be and that they are ready to comply with new importer obligations. If you cannot amend labelling/packaging, investigate your ability to ‘overlabel’/sticker for a short period. In most cases, product placed on the market before 31 December 2020, can circulate without labelling changes, so investigate whether you can place more product on the EU market.
    • Product certificates/testing — if products need re-certifying/tested by a notified body/safety assessor based in EU, this will be generally required for products placed on the market after 31 December 2020. A new notified body should be found without delay.
    • Designated persons — where your products need the presence of a designated or qualified person in EU, make the written appointment in readiness for 31 December 2020.
    • Review if there is a need to change your corporate structure or supply chains to enable regulatory compliance.

    For all EU businesses trading in the UK:

    • Be clear when you will need to make any compliance changes and plan accordingly.
    • Review if there is a need to change your corporate structure or supply chains to enable regulatory compliance.

    Key contacts

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    Tax and finance

    Priority action: Analyze short-term cash flow and working capital requirements taking into account possible Brexit disruptions as well as registering for additional VAT obligations and update systems accordingly.

    Key actions for tax and finance

    • If a UK company currently prepares consolidated financial statements that includes EU entities, there is a specific issue for groups with 31 December year ends. The EU subsidiaries of such a UK parent may be required to prepare consolidated financial statements at 31 December 2020, in place of the UK company. Identify whether this situation applies to you, and if so take steps to ensure that your EU company is ready and able to prepare consolidated financial statements.
    • Review plans to obtain UK and EU grants as businesses may not be eligible to continue to claim. Continue to review UK Government policy as the new UK and devolved administration State Aid regime is established.
    • Assess future withholding tax costs arising from dividends, interest or royalties payable.
    • Prepare for changing VAT reporting and evidence requirements. Great Britain will no longer be treated as part of the EU VAT area for goods, and both Great Britain and Northern Ireland will no longer be treated as part of the EU VAT area for services after 31 December 2020. The impact will be lost EU VAT simplifications which could result in new compliance obligations — firms should consider what obligations they will have. For VAT purposes, intra-community supplies of goods between the EU and Great Britain and domestic supplies of goods between Northern Ireland and Great Britain will be redefined as imports and exports. Firms should review and prepare for the changing reporting and evidence requirements.

    Key contacts

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    Legal and contracts

    Priority action: Check material business-critical contract terms to assess risk of termination or significant liability from any inability to perform your obligations and plan accordingly. Claims related to delay penalties, Material Adverse Change (MAC) clauses, force majeure, time being of the essence and specific Brexit clauses could apply from or shortly after 31 December 2020.

    Key actions for legal and contracts

    • Consider implications of territorial limitations of the UK’s exit from the EU — for example we have heard critical IT/software providers confirm they will not recognize the use of licenses granted for ‘EU’ use by the UK entities of a global business.
    • Update your contracts to include new agreements on replacement INCOTERMS with suppliers/customers which will apply after 31 December 2020.
    • Record other discussions on critical contracts with any third parties on which you intend to rely, to ensure evidence is gathered in the event any claims are required.
    • Ensure your corporate structure is suitable to be able to meet the regulatory obligations and requirements mentioned in the Regulatory and Compliance section or consider incorporating new companies/branches.
    • Review your corporate governance obligations and prepare for any additional filing or reporting requirements.
    • Review your intellectual property (IP) rights and licences. Only those EU Trademarks (EUTM) applications completed prior to 31 December 2020 will be cloned to UK marks, so monitor ongoing applications and check for any renewal dates close to 31 December 2020. Identify if licences in or out of the business are sufficient, whether they need amending for territorial reasons and if they need to be extended to new UK Trade Marks (UKTM). Also check whether the licence requires registration and if you are involved in parallel trade, verify whether you require EEA-based IP rights holder’s permission to export goods to the EEA.
    • Transfer EURid domains to an EU/EEA holder before 31 December 2020.
    • Ensure Brexit diligence forms part of any corporate transactions involving companies with cross-border trade (UK/EU or expansion), including on financial impacts on valuation, inclusion of earnouts and MAC clauses.

    Key contacts

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    IT, systems and data

    Priority action: Ensure the IT system and infrastructure changes are well understood — every business change item in this document will almost certainly have an IT impact. Confirm that necessary changes are well underway with a view to completion as close to 31 December 2020 as possible.

    Key actions for IT, systems and data

    • Identify critical IT application or infrastructure updates due to take place near to or after 31 December 2020 and assess viability for rescheduling. Verify for interdependencies with other business changes occurring as a result of Brexit and any new changes to IT systems, process and procedures required in support.
    • Prepare your staff for a significant uptick in cyber-attacks against your organization, especially phishing.
    • By now, you should have a good grasp on your risks with regard to Brexit data storage and flows. Actions should be under way to mitigate as required.
    • In addition to Standard Contractual Clauses and Binding Corporate Rules (or their equivalents), ensure that your IT contracts do not contain any unforeseen issues such as region limited licenses.
    • Test your cutover process to ensure that all EU to UK required changes (e.g., Terms and Conditions on a website) will work as you move in to 2021.

    Key contacts

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    Commercial and pricing

    Priority action: Identify and engage with priority customers, considering possible increases in costs and border delays and noting that these will likely arise both in a deal and no-deal scenario. Understand impact of changes in costs across end-to-end value chain.

    Key actions for commerical and pricing 

    • Carry out modelling to determine the extent to which these increased costs can be absorbed in pricing.
    • Consider any changes needed to payment deadlines throughout the supply chain, both for suppliers and customers.
    • Review and amend invoicing requirements.
    • Consider trade-offs between the value of products, origin requirements, and the increased cost of warehousing and logistics.
    • Review transfer pricing and intellectual property rights arrangements, particularly where supply chains and contracts may be moved due to changes in the legal or regulatory environments.
    • Consider the potential benefits and authorization requirements for the use of customs easements such as inward processing relief.

    Key contacts

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    Northern Ireland

    Priority action: Continue to check for updates on Brexit guidance on moving goods under the Northern Ireland Protocol, including recent guidance from HMRC on VAT for GB to NI movements and EORI numbers.

    Key actions for Northern Ireland

    • Certain import and export customs and VAT procedures will be required regardless of a whether a free trade agreement is agreed. Ensure you understand the new requirements, including the complexity of different VAT and regulatory regimes for goods and services, and update systems and reporting for businesses. Register for new schemes established by the Northern Ireland Protocol, including applying for authorisation under the new UK Trader Scheme.
    • As regulatory checks will be introduced for some goods, prepare contingency plans for supply chains in the event of delays to shipments.
    • Consider the additional resources required to manage the impact of increased administrative requirements including on working capital and additional staffing.

    Key contacts 

    Summary

    Regardless of whether a UK-EU trade deal is agreed, significant change and disruption will be a given for most businesses. Adapting to the new environment will be long term process. However, working through final considerations and immediate practical actions around the end of the transition period could support business continuity.