No-deal Brexit: What your business needs to consider and plan

Although the UK government and European Union (EU) say a no-deal Brexit is undesirable, it is the outcome for which they’ve produced the most guidance and documentation, as well as invested the most amount of money and other resources.

It’s also one of the most likely outcomes based on the evidence we have right now.

Businesses need to prepare now, but few organisations – including the UK government itself – believe that UK businesses have prepared sufficiently for a no-deal Brexit.

The recently released Operation Yellowhammer document, which presents “reasonable worst case” scenarios, says business readiness is at a low level. The reasons listed for this range from “absence of a clear decision” about how and when the UK will exit the EU, to “EU Exit fatigue”.

In its What Comes Next? report, the Confederation of British Industry examined 27 key areas of the economy and concluded “no one is ready for no deal”, adding that it “is the responsibility of business and governments on both sides to do what they can to get ready”.

How a no-deal Brexit will affect businesses

There remain two likely post-Brexit outcomes, outside of rumours or supposition.

The first is the passing of a withdrawal agreement, even though the first attempt by Theresa May’s government was roundly rejected by the UK Parliament in late 2018. This would probably create a post-Brexit withdrawal period, lasting up to two years, if the new withdrawal agreement is modelled on the older one.

During this time EU legislation, regulation and institutions still be recognised within the UK, so very little would change for businesses.

However, negotiations will continue between the UK and EU on the post-Brexit future, and businesses will have time to fully prepare.

If a revised withdrawal agreement proves impossible to achieve then the UK could exit the EU immediately on a set date, and thereby create a no-deal Brexit scenario in which case the EU will immediately cease to have oversight in the UK.

In a no-deal Brexit, there would be immediate requirements on businesses to adapt, affecting everything from importing and exporting to recruitment and product certification.

Brexit preparedness after a no-deal Brexit

To take into account up-to-date developments and information that’s been released, Sage has recently updated our white paper Preparing for Brexit: Key business actions to consider if the UK leaves the EU without a deal.

It explains how Brexit will affect businesses and provides a general overview of key actions, along with specific considerations.

Additionally, it looks in depth at key sectors, such as food and drink, agriculture, pharmaceuticals and chemicals, retail, and professional services, while also providing significant references where businesses can learn more.

The white paper should be considered essential reading for businesses of all sizes but in this article, we briefly summarise the critical areas it discusses in the event of a no-deal Brexit:

Customs and indirect tax such as VAT

Ensuring your supply chain keeps working

Work and the movement of people

Regulatory issues

Finance and money

Legal issues

You should consider this article and the report as starting points for your Brexit preparations, or as a way of enhancing or checking any existing preparations you have in place.

However, there is no substitute for seeking your own professional advice if you are unsure about the specific implications of Brexit on your businesses.

Good advice for all the discussion topics below is to keep up with announcements and publications from both the UK government and the EU, as well as regulatory authorities within both the EU and the UK.

Customs and indirect tax such as VAT

Customs and VAT across EU borders might not have been of much concern to businesses until now, but a no-deal Brexit will immediately introduce new administrative requirements for trading in Europe, and potentially new cash flow requirements.

For example, businesses will need to understand how to complete and submit customs declaration forms. You will need to agree who within your business will complete the forms and ensure they have sufficient training.

Your business will need to apply for an EORI number, if the government has not auto-enrolled your business – and if you haven’t yet received your auto-enrolled EORI number – then you should make an application anyway.

You should speak to logistics providers about clearance arrangements and consider registering for Transitional Simplified Procedures.

You should also consider if your business will benefit from using a VAT Deferment Account or obtaining a Comprehensive Customs Guarantee to help with cash flow when paying customs or import VAT. Further information can be found in HMRC’s step-by-step guides to importing and guides to exporting.

You should quantify the additional duty that will become payable. Details of the UK’s draft no-deal temporary tariff schedule is now available.

Ensuring your supply chain keeps working

Ensuring your business has the materials it needs, and is able to continue to send goods out, requires examination in a world of no-deal Brexit.

The government’s own Operation Yellowhammer report lists a “reasonable worst case” scenario where “50% to 85% of HGVs travelling via the short Channel Straits may not be ready for French customs”, with a reduced flow rate of freight vehicles to just 40% to 60% of current levels. This could last for up to three months, continues the report.

Start by mapping your critical inbound and outbound supply chains to understand which flows are vulnerable to disruption from border delays. Include in this critical goods not for resale, such as packaging and maintenance parts.

You should review all your contracts with non-UK suppliers and customers to ensure they include Incoterms (international commercial terms for trade in goods) to identify which party is responsible for clearance obligations.

And you should talk to suppliers and customers about payment terms and service level agreements, such as delivery timetables, to try to build in some flexibility.

Work and the movement of people

Without people a business is nothing. Following a no-deal Brexit you will have to ensure your workers still have the legal right to work within the UK, and also ensure any of your workers overseas have the right to work in those countries, as well.

Critical to this is reviewing the UK government’s advice on Settled Status, including the employers’ toolkit and right to work tool along with guidance on EU Leave to Remain.

It isn’t just you who needs to know this information. Ensure the key information is shared with your employees, on the company intranet site for example.

Within the business, you might also want to nominate a key point of contact to support with people-related queries from employees, if you do not have a discrete HR department or person.

Regulatory issues

Following a no-deal Brexit, members of some regulated industries – such as financial services and pharmaceuticals – will need to ensure they’re still regulated for the markets in which they work. This includes the UK, of course, following the removal of EU regulations.

Start by identifying which parts of your business are subject to EU regulation. Review the relevant regulation to understand if you will need additional authorisations to continue your activities in the EU, for example where activities can only be undertaken by an EU/EEA established business.

Check UK government guidance on product standards in light of the UK government’s decision to provide continuity for a temporary period in a no-deal Brexit scenario.

If you export goods to the EU that currently have CE marking and you do not self-declare conformity, then check your additional obligations.

Review what personal data your business holds, who you share the data with, and whether you are sharing personal data cross-border, including with any third-party service providers.

The ICO website has a step-by-step guide on the steps to take to support continuity of cross-border data flows.

Finance and money

Much will change in the world of finance and tax following a no-deal Brexit. Aside from the fact that costs and cash flow changes associated with Brexit may impact working capital, the UK will no longer be subject to EU Withholding Tax treaties, for example.

You should model the potential impact of a no-deal Brexit scenario on your financial forecasts, including the cash flow impact of additional duty costs.

Ensure you speak to lenders about access to funding and discuss payment terms with suppliers.

And, as mentioned above, if the business relies on EU directives to reduce withholding taxes to nil on payments of interest, royalties or dividends, identify whether there will be an increased tax cost.

Legal issues

How much of the content of your legal contracts is built on EU law, and how many of your products rely on EU intellectual property laws?

You should audit your critical cross-border commercial contracts and consider whether to renegotiate terms to seek further contractual protection against risk and cost of potential Brexit disruption.

Consider the basic definitions in contracts to check that they remain valid (for example, that geographical territory covered does not assume the UK is still in the EU).

You should review any EU intellectual property and .eu domains to ensure continuity post-Brexit.

It’s also necessary to review guidance on how cross-border business operations and European specific corporate entities would be affected if there is a no-deal Brexit.

Conclusion

A question asked by many businesses is when they should start preparing for Brexit. In light of recent developments, the answer is right now.

With none of us knowing when the Brexit date might fall, it’s easy to feel overwhelmed. If we assume a no-deal Brexit date within the coming months, the sheer number of tasks required to prepare can feel galling. However, there’s no avoiding this work and no amount of preparation is going to be too much.

Consider no-deal Brexit preparedness an important part of your planning process and, as such, remember the key components of any such exercise:

1. Prioritise what’s vital – the things without which your business can’t continue.
2. Admit you can’t resolve all contingencies and that some otherwise important areas might have to be underserved until resources are available. Some sacrifices might have to be made.
3. Make plans and adapt them as time goes on and new information comes to light.
4. Get help where needed, including professional support if required.
5. Stay abreast of developments.Stay informed and identify reliable information sources, while avoiding becoming bogged down in rumours or opinions.

Brexit may well be one of the most trying periods for any business in recent decades but there is always light at the end of the tunnel. And once we’re over the hump, there may be fresh opportunities and room for growth. Keeping an eye on this may help you stay on track.

Editor’s note: This article was first published in February 2019 and has been updated for relevance.