It’s been a week or so since I released my first blog on the post-transition arrangements for UK businesses who trade internationally. As I write, we’ve literally just completed a deal with EU! Boris has done it! However the full details have yet to be made public with the transition date edging closer.
There’s been a barrage of radio and TV adverts, billboards and online content telling businesses to prepare for the changes. But it wouldn’t be unreasonable to ask ‘change to what?’ What we can say for sure is if 2020 was the year of COVID-19, then we can expect 2021 will be the year Brexit becomes very real.
And while I’m not going to wade into the debate on the rights or wrongs of this rapidly approaching new dawn, I know that there’s going to be a degree of pain in equal measure for believers and naysayers no matter what transpires.
In part one of this blog series, I discussed the implications for VAT for importers and exporters on 1st January. But to provide a full picture, I want to offer some thoughts on customs arrangements and the thorny issue of trade tariffs.
OK, let’s get into it…
Free Trade Vs Tariffs
You’ll have heard the term ‘frictionless trade’ a lot over the past few years. In effect, this meant that we could move goods in and out of the EU free trade zone with minimal paperwork, border checks or additional payments.
That’s not to say UK businesses didn’t have to deal with issues such as customs declarations and the associated admin’. Many firms will have good experience of these processes. Our current trade with the US being a prime example of such a trading relationship.
However, there are likely many businesses, especially SMEs, for whom this new regime will be an extra challenge in the new year. It’s also worth mentioning these changes will apply to some degree whether we strike an EU free trade deal or move to ‘an Australian style’ trading arrangement.
The Building Blocks
It’s worth summarising the main elements of customs processes. You can use this as a checklist to see how well prepared your business is for export and import trade going forward.
- EORI number -a unique identifier that starts with GB indicating a business is an exporter/importer (NI businesses will need an additional XI EORI number). You’ll also need to source an EU EORI number as a reference for all the EU businesses who buy your exports.
- Commodity Codes – an 8-10 digit code from a globally agreed list that indicate the types of goods involved in an import or export transaction.
- Tariff Payments– these are the additional costs that apply to imported or exported goods based on the new UK Global Tariff (UKGT) tables. It will be the end client who makes these payments so the costs will need to be factored into export arrangements.
- Import Declarations– the process of letting tax authorities know the goods have entered the country and that tariffs may be payable. Businesses will also need software that aligns with CHIEF the government import/export management database.
- Import/Export Licences– these will be required to import a specified list of goods such as livestock, medicines, high-risk chemicals or armaments. Additional costs will include inspection fees for the relevant products. And do note these product lists may differ between different trading countries.
- Incoterms – these involve the commercial terms of trade that businesses agree in their trading contracts. In short, they are an agreement about who pays the costs and tariffs and at what point in the logistics chain. For example, ‘Free On Board’ is an Incoterm where the seller is responsible for all charges until they are loaded onto a ship at a UK port.
- Logistics– the growing complexity of moving goods in and out of the UK has implications for additional business logistics costs, availability and timescales.
It’s Complicated
Is your head hurting after reading that list? I wouldn’t be surprised; it’s a tricky area. So involved in fact that many businesses sub-contract their import/export arrangements to specialist freight forwarders, customs brokers or fast parcel operators. Alternatively, you can employ experts in-house who understand how these processes work.
And even these well-informed parties may be scratching their heads when trying to deal with the Hokey-Cokey arrangements involved with the Northern Ireland protocol.
Mitigations
Like VAT the UK government has made some arrangements to ease the pain any new circumstances may bring. Primary to this is deferring of import declarations for up to six months from 1st January 2021.
As long as you’re a GB based business and the goods have been in free circulation in the EU before import (plus a few other specific criteria) GB businesses can delay their declarations as long as they have had HMRC authorisation and register on the CHIEF database.
While not a full get-out-of-jail-free-card these concessions will offer some help but will not excuse a business from keeping complete records of their activity for when the entire system kicks in.
An Admission
At this stage, I’ll hold up my hands. I’m not an expert on these matters and would urge my clients and readers to get the right help in getting up to speed with the changes that are rushing towards them.
However, I can see a host of accounting issues here. Notwithstanding tariffs and VAT, there are a glut of additional costs in the pipeline. These include as a minimum: logistics, admin’, consultancy fees, additional regulatory requirements and software upgrades.
As crucial, are the implications for cash flow, profitability, product pricing, staffing, legal fees and taxes. Business finances will need to be replanned, and mitigation for impacts and funding put into place to help firms tackle the inevitable challenges they’ll face.
And that’s where the Enso team can help. With our finance expertise, we’ll help clients plan for the changes and understand how to restructure their business. We’ll ensure they can continue to thrive as ‘global UK’ sallies forth into an exciting if bumpy, future.
Call us on 0161 511 2143 or mail me at adam@meetenso.co.uk and let’s talk about how your firm can make the most of the brave new world in 2021.