Businesses across the United Kingdom are anxiously awaiting more news on the terms of the UK’s withdrawal from the European Union. A myriad of terms have been thrown around in the press; soft Brexit, hard Brexit, no-deal. Will the UK remain part of the single market? Will we agree to a deal similar to that of Canada or Norway? Or will we simply crash out of the EU without a deal and begin trading with other countries according to World Trade Organisation (WTO) rules?
All of these situations remain possible, leaving many businesses uncertain as to their plan of action. Should businesses continue trading as normal until the deadline, or should they slow down their operations until January 31st to avoid losing revenue due to confusion at the border? Here are the most proactive steps UK businesses can take in light of Brexit:
1. Assess the processes and systems set to change
In a no-deal Brexit scenario, British businesses will be faced with a sudden upheaval in the processes that they will have to deal with to trade internationally. Everything from more stringent requests for Certificates of Origin at the border to health checks for certain exports. SMEs will be particularly affected by this sudden change as failing to adhere to the new regulations would make a proportionally larger dent in their bottom line.
As such, preparing for the most extreme change in trading processes is the best plan of action. For instance, whether you are importing from or exporting to the EU, you’ll likely need an EORI number if there’s a no-deal Brexit. Businesses outside the EU wishing to trade with it require an EORI number to clear the goods at customs. Businesses can apply for this online and receive it within five working days. You should also check if your European trading partner has an EU EORI number.
It is also highly advisable to check whether your business’ customs procedures still apply in the event of a no-deal Brexit. There are a number of customs facilitations that your business may have been granted either by HMRC or by an EU customs authority, such as a simplified freight importation procedure or being allowed to temporarily import commercial samples for trade shows. Failing to check whether these still apply could impact the speed at which your SME can trade and potentially see produce lost or wasted at customs.
2. Assess the financial impact and re-adjust your business model
A key sticking point for current Brexit negotiations is the level of tariffs and quotas that both parties will set for trading everything from agricultural goods such as milk to manufactured products such as cars. Planning to be financially ready for a potential trade deal is near-on impossible, as the terms of this deal are unpredictable. However, businesses can plan for the financial impact of a no-deal Brexit.
If the UK leaves the EU without a deal, our European partners will begin applying their ‘Most Favoured Nation’ rates to anything we export. These rates apply to any countries the EU does not have a trade deal with. The average EU tariff is relatively low, standing at around 2.8% for non-agricultural products, but SMEs in certain industries could be severely affected.
All businesses importing and exporting with these nations should learn the EU Most Favoured Nation tariff applicable for their product. This information should then inform their decision to import and export certain goods from the EU, as well as the quantity in which they do so.
3. Consider appointing a customs agent
The intricacies of navigating the custom system of a no-deal Brexit will likely be difficult for even the most prepared SMEs. Moreover, the time needed to research and understand the new systems and rules will take time away from the business’ main operations, something which many cannot afford to do in today’s volatile market.
It may therefore be advisable to hire a specialist to help deal with your company’s customs declarations. These ‘customs agents’ can be hired to ensure that all necessary taxes are paid and that every rule is followed properly so that goods can be imported and exported without unnecessary delay.
Although many entrepreneurs and SME owners will be tempted to deal with the new rules independently to save money in the short-term, this approach can quickly become a false economy when the upfront cost of specialist software and the financial cost of simple mistakes are taken into account. A customs agent is likely a worthwhile investment, especially for those businesses looking to expand their overseas trading in the future.
4. Assess the risk of dealing with new potential overseas partners
Trading overseas undeniably offers many benefits to British SMEs, from new revenue streams to greater productivity, and a no-deal Brexit should not scare businesses away from doing so. However, it must also be said that doing business internationally carries financial risks. Businesses may have historically poor credit or are perhaps on the verge of collapse, leaving those who trade with them open to financial losses.
A no-deal Brexit will likely encourage many businesses to revisit their current trading partners and perhaps look further afield to streamline their supply chains. An important first step should be to run credit checks on those potential trading partners to understand how financially stable and reliable they are. Many third-party business intelligence providers will also be able to produce reports on the adverse activity of a company and attribute a risk score to them. SMEs looking to minimize the risks of a no-deal Brexit would do well to look into such reports.
About the Author
Paul Beard is the Commercial Director Creditsafe Group, and is responsible for the negotiation and management of commercial contracts for the Group's companies in the UK, France, Germany, The Netherlands, Sweden, Ireland, Belgium, Norway, Italy, the USA and Japan. He also oversees the licencing and purchase of data within the Group and the implementation of GDPR driven change and stronger corporate governance.