With less than a year to go before the UK formally leaves the EU, PwC offers sage advice to companies.
The recent progress on the draft withdrawal agreement and the proposed EU-UK deal on the transition period pre-Brexit is welcome news, but a new PwC report posits that a hard Brexit is still the most likely outcome.
The Brexit Spring 2018 Update released today (13 April) notes that significant uncertainties still remain concerning the draft withdrawal agreement, including Northern Irish border questions and governance issues pertaining to the European Court of Justice in particular. These concerns must be resolved by October of this year for the transition period to proceed.
PwC Ireland said that its view remains the same as last year, namely that a hard Brexit is the most likely outcome of these negotiations. “Such a hard Brexit would mean that the UK would leave the EU at end March 2019 with no future trade agreement, World Trade Organisation tariffs, and possible lengthy customs checks at ports/airports would apply,” the report warned.
Feargal O’Rourke, PwC Ireland managing partner, said clients are seeking clarity on the post-Brexit trading relationships. “The UK’s current unwillingness to consider a customs union, and continuing talk of ‘cherry-picking’ which arrangements it does or does not want to retain, means that a hard Brexit remains too likely for businesses to ignore,” O’Rourke added.
He said the only thing businesses can be certain of is the inevitability of change and disruption. “Firms need to prepare now for additional costs, border issues, disruption to supply chains and people mobility issues. We therefore strongly advise Irish businesses to plan for a hard Brexit scenario taking effect at the end of March 2019.”
Assess how you will enable customs clearance
Assess which customs and trade registrations, authorisations, and reliefs are required to be put in place to enable customs clearance, duty payments, meeting relevant regulatory licensing requirements and securing available duty reliefs. In addition, engagement of a customs agent will be crucial.
Map and validate supply chain models
Companies need to map and validate their supply chain models in order to understand their direct and indirect exposure. For example, a challenge for Irish business is the use of the UK as a land bridge, with products moving through the UK to and from Ireland.
Sourcing products through the UK from countries that the EU currently has a free trade agreement with, or storing and distributing non-EU goods such as Chinese- or US-manufactured goods from a UK warehouse, will have significant customs compliance requirements.
Invest in customs expertise
Irish companies will need to think more strategically about customs and trade. On import and export, there will be a requirement to file customs declarations for all goods imported and/or exported to or from the UK. Access to customs and trade knowledge will be vital for day-to-day operational activities.
Obtain AEO status
There has been commentary about ‘trusted trader’ status, and what this could mean for importers and exporters post-Brexit. Authorised Economic Operator (AEO) status is a well-established ‘trusted trader’ customs programme, in place in the EU since 2008.
After Brexit, AEO could provide for faster customs clearance by offering priority access to companies that have been pre-assessed.
Assess ‘Brexit readiness’ of appropriate contracts
Many businesses may find that their current contracts lack provisions to deal with Brexit and the changing relationship between the UK and the EU. For the purposes of customs and trade, it will be vital to assess these contracts.
Ensure adequate cash flow for VAT and additional inventory
Import VAT is a duty of customs. A result of Brexit is that it now poses a cash flow challenge for companies trading cross-border with the UK. Import VAT will be charged at the border when importing goods, in both Ireland and the UK. Cash flow problems will be compounded for companies that need to hold additional inventory as insurance against potential border delays.
Develop a contingency plan to mitigate against border delays
There is no guarantee that border procedures will operate smoothly immediately after Brexit. Companies need a contingency plan to mitigate against any risk of delay when goods enter or exit the country. Customs reliefs available in certain instances to reduce duty payable should be explored as part of any Brexit planning.
Monitor your workforce
Immigration is the one area where a clear picture is emerging. The UK has outlined details of its settlement scheme and temporary residence scheme, and registration for UK citizens will be a big change for employers. Systems and immigration policies will need to be updated. Firms should already have completed an impact assessment on what this could mean for their organisation.
Consider your intellectual property
Intellectual property protection, including patents, trademarks, registered designs and copyright, could all change after Brexit. The British government said European patents will still apply in the UK but the UK is ‘exploring options’ in other IP areas such as trademarks and designs because, in many cases, these will lapse after Brexit.
Look at funding
Consider applying for Government or Enterprise Ireland funding to support diversification of business models, including exploring new markets.
David McGee, PwC Ireland Brexit taskforce leader, said: “With the UK reconfirming its intention to leave the Single Market and Customs Union, we know that a border of some type will be required.
“This means there will likely be a need to lodge customs declarations and manage other administration and compliance matters; for non EU-UK originating goods, non-tariff barriers arising from different rules and regulations; import VAT; and risk of delays at ports or airports.
“There is no room for complacency and, until we have certainty on all of the issues, businesses should prepare for a hard Brexit and a worst-case scenario,” McGee noted.