How to prepare for Brexit - checklist
Read our quick-start guide, outlining a variety of areas that could impact your business post Brexit, to help you prepare for when the transition period has ended.
Last updated: 19 October 2020
While there is still little certainty around the UK's future relationship with the European Union, businesses that trade with or provide services in the EU need to have contingency plans in place that are sufficiently flexible to cope with a variety of possible outcomes. ICAEW’s checklist covers the areas that should be considered.
10 questions to ask
- Where will you get more cash, if you need it?
- What help do you need to access potential new markets?
- Have EU/EEA/Swiss-national employees registered for the settlement scheme?
- How would additional customs duties affect your sales and supply chain?
- Are you ready for customs? VAT and customs duty requirements from 1 January 2021
- Have you registered for simplified import procedures?
- How will your principal contracts be affected by Brexit?
- Do you receive personal data from the EU/EAA?
- How will changes to VAT affect you?
- Do your corporate reports reflect Brexit risk?
Where will you get more cash, if you need it?
Assess how much working capital you need. Consider how you would access additional funds, if needed
The economic consequences of Brexit are unclear and will depend upon the terms of free trade agreements that the UK can negotiate with the EU and other key trading partners. These might not be fully in place by the time the transition period ends and the UK leaves the EU. With cash flows already under strain due to the pandemic, businesses should plan ahead and think about how they could deal with further economic uncertainty. Economic uncertainty might affect sales, the collection of debtors or inventory levels. Businesses may need more cash at hand so they can make sure they continue to make payments on time.
What help do you need to access potential new markets?
Consider how you would start activities in new markets, should opportunities arise
The UK government is seeking new trade arrangements with countries outside of the EU/EEA. These trade agreements are largely still in progress. Should they result in improved trade conditions for UK businesses, there may be first mover advantage in accessing these markets.
Have EU/EEA/Swiss-national employees registered for the settlement scheme?
Ensure employees are aware of the settlement scheme and the need to register
Employees who are EU/EEA/Swiss nationals will need to register for the settlement scheme by 30 June 2021. The settlement scheme ensures they retain the right to continue to live in the UK.
How would customs duties affect your sales or supply chain?
Understand how tariffs could affect you
Tariffs, or customs duties as they are known in the UK, are a tax levied on imports. There are no tariffs on trade wholly within the EU customs union, but unless the UK reaches a free trade deal with the EU they will apply to UK-EU trade. Currently the UK’s trade with the rest of the world is subject to EU tariff rates. After the UK leaves the EU, tariffs will depend on preferential trade agreements the UK has negotiated, which can differ from country to country, or on World Trade Organisation (WTO) rules. WTO rules stipulate "most favoured nation" tariff rates, which apply where a preferential tariff has not been negotiated.
Tariffs can be significant for certain items. Equally, some items will have zero tariffs under the UK's "most favoured nation" rate . Businesses that only trade with the EU may have no experience of customs duties. They will need to consider the implications for pricing, purchasing decisions and contracts.
The rate of customs duty (tariffs) depends on four elements:
1. the customs value of the goods;
2. the type of goods (their commodity code);
3. the country they are being imported into; and,
4. where they are judged to have "originated".
Points to consider include:
- how you will value the goods. HMRC sets out six methods of valuation. Method one is based on the ‘transaction value’ and HMRC expects this to be tried first;
- how you will identify the commodity codes that apply and ensure they’re available in systems that will need to use them;
- whether "binding tariff information" or “binding origin information” decisions could help provide certainty for major classes of item. For imports to the UK, these are provided by HMRC;
- whether a ‘preferential tariff’, "most favoured nation tariff", or "trade defence measures” such as “anti-dumping duties” apply;
- the "proof of origin" you will need to provide to be eligible for any preferential tariff; and,
- the rate of excise duty that applies, in addition to any customs duties, to alcohol, tobacco or certain energy products.
Are you ready for customs? VAT and customs duty requirements from 1 January 2021
The UK/EU withdrawal agreement expires at 11pm GMT on 31 December 2020. After that date, the UK will become a separate customs territory from the EU. This means that from 1 January 2021, all imports and exports of goods to and from the EU will become subject to customs procedures, both in respect of EU goods imported into the UK and UK goods exported to the EU.
It is essential to appreciate that, whether or not the UK and the EU enter into a free trade agreement, these new customs procedures and processes will come into force on 1 January 2021. The UK’s negotiations with the EU will have absolutely no impact on the urgent need to review your importing and exporting arrangements and potentially take these actions.
What you need to do?
All traders will need to have considered these actions before they move goods after 11pm GMT on 31 December 2020. There are clear actions traders should take to prepare for the staged introduction of customs controls. All involved in supply chains will also need to consider the EU border requirements, procedures and access to EU or individual Member State’s systems. These will need to be met before moving goods.
1) Apply for a GB EORI number
To import or export goods into the UK you will need an GB Economic Operator Registration and Identification (EORI) number. This is required for all businesses (traders and hauliers) moving goods into or out of GB, including those delaying their import declarations. If you don’t have an GB EORI number, you will not be able to import and export goods into the UK. You will need to apply for a number. The application process takes about five to ten minutes, but it can take up to a week to get the number. Last year, HMRC auto enrolled VAT registered businesses with EU trade which did not have an EORI number, so you should check whether you already have a number before applying because you won’t be given a new EORI number. If in doubt or you have lost the piece of paper, contact HMRC to check, EU based traders and hauliers will need a GB EORI number to carry out border formalities in GB.
2) Apply for an EU EORI number
Some GB traders or hauliers may also need to apply for an EU EORI number. Traders need an EU EORI number if their business will be making customs declarations or getting a customs decision in the EU.
3) Get a Customs Intermediary
Customs declarations are complicated. Most businesses that currently trade outside the EU use an intermediary, such as customs agents, Fast Parcel Operators (FPOs), Freight Forwarders (FFs) or brokers, to help them meet the customs requirements.
Intermediaries can help traders find the information needed to complete formalities and submit the required declarations into HMRC’s customs systems, including for example information such as the value and origin of goods. Using an intermediary simplifies the declaration processes for traders. The UK Government has announced a grant scheme to support intermediaries and those traders who want to make declarations themselves.
If a trader decides not to use an intermediary, the trader will need to make declarations themselves. To do this the trader will need to get access to HMRC systems and to purchase software. GB Traders may also need an EU intermediary or fiscal representative to carry out export and or import formalities in the EU.
4) Apply for a Duty Deferment Account
The basic rules of customs are that imported goods need to be declared, and any duties paid (which could include VAT, customs and excise duties), at the time of importation. However, traders who import goods regularly may benefit from having a “duty deferment account” (DDA). This enables customs charges including customs duty, excise duty, and import VAT to be paid once a month through Direct Debit instead of being paid on individual consignments. With effect from 1 January 2021, VAT registered traders can account for import VAT on their VAT return using postponed VAT accounting. To set up a DDA, traders, or their representatives, apply for a deferment account number (DAN) and will need to be authorised by HMRC. New rules are being introduced which will allow most traders to use duty deferment without a Customs Comprehensive Guarantee (CCG) – we will publish more details on this shortly.
5) Prepare to Pay or Account for VAT on Imported Goods
From 1 January 2021, if you are VAT registered and completing full customs declarations and have chosen not to defer your customs declaration, you can choose to adopt postponed VAT accounting to account for import VAT via the VAT return.
If you are importing non-controlled goods (see HMRC’s List of controlled goods from 1 January 2021 – broadly excise goods and a range of others for which licences etc are usually required) and either delaying your supplementary customs declaration, or using Simplified Customs Declaration process, where authorised to do so, and make an Entry in Declarants Records, the businesses must use postponed accounting and account for their import VAT on the VAT return.
Non-VAT registered traders (and any VAT registered traders not using postponed VAT accounting) will need to report and pay import VAT through the customs processes. Within this context, VAT payments can be deferred using a duty deferment account DDA.
With regards to VAT on imports of goods in consignments not exceeding £135 (excluding Excise and consumer to consumer consignments), the point at which VAT is collected will be moved from the point of importation to the point of sale. This will mean that UK VAT, rather than import VAT, will be due on these consignments and therefore accounted for via the VAT return.
Although the UK will become a separate customs territory, there are special rules in relation to goods imported and exported from and to Northern Ireland.
Are you eligible for simplified import procedures?
Consider if you could benefit from simplified import procedures. Businesses will need to be eligible to use them. They mean you may not need to settle VAT and duties (if any) on imports immediately at port UK border controls for imports will be introduced in 3 phases. Each
From 1 January 2021 these customs controls will apply:
1) Customs Declarations (Exports & Imports): Importers and exporters will have to complete UK and EU customs declarations after the end of the transition period.
2) Customs Duties (Imports): Importers will need to ensure that any customs duties applicable to their goods under the new UK Global Tariff are paid. In order to do this, importers will need to determine the origin, classification and customs value of their goods. There are options available to defer any payment that is due.
3) VAT (Imports): VAT will be levied on imports of goods from the EU, following the same rates and structures as for to RoW imports. VAT registered importers will be able to use postponed VAT accounting (this is optional unless they are eligible to defer their supplementary declarations, when they must do so). Non-VAT registered importers can report and pay import VAT in the same way as they do for customs duties.
- For consignments of £135 or less a separate scheme will apply; for these shipments the vendor exporting to the UK will be required to charge and collect any VAT due at the time of sale. If VAT has not been charged then the purchaser will need to settle this themselves. VAT registered businesses can do this on their VAT return as a ‘reverse charge’.
4) Safety & Security Declarations (Exports & Imports): Safety & Security declarations will be required to provide more information to UK/EU governments about goods moving into their countries.
For imports into the UK, HMRC is phasing in the requirements over the six months from 1 January to 1 July 2021. During that initial six month period:
- For ‘standard goods’, importers to the UK can defer their customs declarations. This means they will not have to present a customs declaration at the point of entry. They will record imports in their own commercial records and then have up to six months to file a ‘supplementary declaration’ with HMRC. To be eligible importers will need to have:
- access to an authorisation for simplified declarations for imports. That means using an agent who is Customs Freight Simplified Procedures (CFSP) authorised, or being CFSP authorised themselves, and
- a Duty Deferment Account. HMRC advises importers to set up their own Duty Deferment Account.
- Customs duties (tariffs) will be payable when supplementary declarations are submitted.
- Importers can still claim ‘tariff rate quotas’ while using simplified procedures. But as some of these are allocated on a first come first served basis, they may wish to accelerate submission of their supplementary declarations.
- Importers will have to use postponed accounting for VAT. That means they will need to include details of goods imported, and settle VAT payable, on their next VAT return. They can use an estimate of the VAT due, but must subsequently correct this on their VAT return once supplementary declarations are filed.
- Safety and security declarations will need to be made from 1 July 2021 onwards.
- For ‘controlled goods’ full customs declarations will need to be completed. For border locations without customs controls systems in place, importers will have until the end of the next working day to file declarations.
- VAT registered businesses currently required to submit monthly Intrastat arrivals declarations will have to carry on submitting these from 1 January 2021, to the same timelines as currently.
There will be other incremental documentation/inspection requirements for certain types of goods (e.g. foodstuffs). Specifically, additional requirements will apply to
- Goods covered by International Conventions / Commitments: e.g. Endangered Species of Wild Fauna and Flora (CITES); Rough Diamonds (Kimberley); Temporary import of non-perishables (ATA Carnets).
- Goods subject to Sanitary and Phytosanitary controls: e.g. Animal products (Products of Animal Origin and Animal ByProducts); Fish, shellfish and their products; High-Risk Food and Feed Not of Animal Origin (HRFNAO); Live animals and germinal products; Equines; Plants and Plant Products. Further incremental requirements will apply for these goods from 1 April 2021.
- Goods with Additional Customs Requirements: e.g. Excise goods.
- Other controlled goods and bottled water (for the full list see section 1.2.5 (pages 51 to 65) of the Border Operating Model.
There are a range of other customs procedures that businesses may be able to benefit from to simplify or defer border processes. These will be particularly useful from 1 July 2021 once the transitional simplified procedures no longer apply. Details of these schemes is beyond the scope of this checklist, but they are described in the UK government’s Border Operating Model
How will your principal contracts be affected by Brexit?
Review your principal contracts to see how they would deal with uncertainty or different trading conditions
It is particularly important that they adequately clarify the terms for trade across EU borders, including how VAT is dealt with. You will need to consider how your contracts and International Terms and Conditions of Service (INCOTERMS) reflect you are now an international exporter or importer.
Do you receive personal data from the EU/EEA?
Review your data flows to identify whether you receive personal data from the EEA, including from suppliers, processors and other group companies
After the transitional period ends on 31 December 2020 the EU GDPR will no longer be law in the UK. However, as the UK government intends to write the GDPR into UK law, from all practical perspectives, GDPR will continue to apply.
After transition, the UK will be a "third country" until the EU makes an adequacy decision regarding the UK. Until then, the transfer of personal data from the EEA to the UK will only be allowed if ‘appropriate safeguards’ are in place. Such safeguards include Standard Contractual Clauses (SCCs). SCCs must be inserted into contracts (whether controller to controller or controller to processor) before before the transitional period ends, and their wording must follow that approved by the European Commission.
Transfers of personal data to the EU/ EEA from the UK will not be affected and transfers to and from countries outside of the EU/EEA will be subject to the same rules as now.
Do you know how changes to VAT will affect you?
Consider how you will register for MOSS for online sales in the EU-27. Claim refunds on sales into the EU. Know that anyone sending a parcel valued at £135 or less into the UK from abroad will need to register in HMRC’s new digital service and account for VAT due
The "mini one stop shop" (MOSS) allows businesses that sell digital services to consumers in EU member states to report and pay VAT via a single return and payment. UK businesses can continue to use the system after the transitional period ends by registering in an EU member state.
UK businesses will lose access to the EU VAT refunds system after the transitional period ends so claims should be made before then.
HMRC is introducing new procedures for parcels sent into the UK from abroad. After the transitional period ends these procedures will apply to parcels sent from the EU. For parcels with a value of less than £135 the business sending the parcel will need to register with HMRC’s digital system and settle any VAT and duties due online.
Do your corporate reports reflect Brexit risk?
Having evaluated Brexit related risks for your business, consider how they might impact on your reporting. You should consider how uncertainty affects judgements and estimates, going concern and, for businesses that prepare them, viability statements
The directors’ report and strategic report are an opportunity to communicate how the board is taking account of the challenges and opportunities of Brexit. Readers may find disclosures more useful where they distinguish specific, direct challenges to the business model and operations from the effects of broader economic uncertainties.
Uncertainty will mean businesses need to pay particular attention to judgments and estimates, in particular when assessing assets for possible impairment.