While the likelihood of a no-deal Brexit seems to be stuck in limbo, few firms appear to actually be prepared for the reality. High Street retailer Next, however, recently published its “Brexit Preparation and Impact Analysis” paper that details its work toward operating under a no-deal Brexit.
“Next is planning for a no-deal Brexit,” a company spokesperson told CW. “If an FTA [free trade agreement] were to be put in place between the U.K. and EU, Next would have to consider what this deal looked like before considering the impact on its plans.”
Such calmness is uncommon. Elsewhere, the Labour Party has said it will vote against any deal the government puts forward and, consequently, put any deal to a people’s vote. U.K.-EU flights may not be able to take off and land in the event of a no-deal Brexit. Car manufacturer Toyota has warned that “no deal’” will mean not just a lack of investment, as many other firms have warned, but a post-Brexit shutdown of production at its U.K. plant as the majority of parts come from mainland Europe. And a new survey by the British Chambers of Commerce (BCC) and Bibby Financial Services (BFS) says that nearly two-thirds of businesses have yet to do any risk assessment of a no-deal outcome in the Brexit negotiations. The survey describes the situation as “Brexit fatigue.” It’s one of the biggest polls of business opinion since the referendum, amassing the views of over 2,500 firms from across the United Kingdom. Almost a quarter of firms with over 250 employees have not completed a Brexit risk assessment—a figure that rises to almost 70 percent when looking at micro firms, those with 10 or fewer employees. Around a fifth of all firms will cut investment, cut recruitment, and move part or all of their business to the European Union.
“Our evidence is clear—failure to reach a political agreement would have real-world consequences, with significant decreases in both investment and recruitment. Larger firms and those active in international trade would suffer the most from a disorderly and sudden exit from the EU, but there will be impacts across the board.”
Dr. Adam Marshall Director General, British Chambers of Commerce
The operational changes that businesses exporting to the European Union will require include knowledge of tariffs, rules of origin definitions, and substantial amounts of information for customs declarations forms for each consignment. Such changes and additional work are among those described by Next in its paper.
The paper enumerates direct and indirect risks and ascribes a level to each risk. Those risks that are highest include duty on imports from the European Union and Turkey, but Next told CW: “From an internal perspective, Next already has a team in place that oversees this aspect of its business for all the importing it does from other (non-EU) jurisdictions.”
Next does not believe that there will be a significant increase in data reporting for imports. Most large companies are required to submit Intrastat declarations for all goods flowing into the United Kingdom from the European Union and vice versa. These contain “almost entirely the same data that is required to make a customs declaration.” There will be an increase in the cost of customs clearance charges, however, though this should not necessarily cause an increase in the compliance workload. In addition: “Next already has the appropriate staff and systems in place to manage extra data requirements. The additional compliance burden is therefore not a material consideration for it.”
The company runs what is known as bonded warehousing, which means that duty is not incurred at the point of entry, and is an Authorised Economic Operator, which means that even imports from outside the European Union incur only minimal delay on entry. For example, from outside the European Union, clearance might take an hour, with goods from inside the European Union needing only a passport check.
Delays caused by postponements of other companies’ goods being imported into the U.K., however, are seen as the highest business risk of all. This issue is not one it can mitigate, as it is about the preparedness of Her Majesty’s Revenue and Customs. It suggests that the government should raise import thresholds, self-assessment tax procedures—as is the case with Value Added Tax—and extending Authorised Economic Operator status to many more companies. If the government took these actions, “Next would adapt as quickly as possible and have the functional capabilities to do this. It is for the Government to decide the rules on this if they determine it appropriate. Next would then have to adapt, as would all companies.”
“The businesses we work with tell us that they simply don’t have enough information to enable them to prepare for any of the potential outcomes of Brexit. This could negatively impact sales performance and output in the final quarter of the year, which is typically a peak trading period for many businesses throughout the country.”
Edward Winterton U.K. CEO, Bibby Financial Services
Tariff issues for certain sales include: the risk of incurring double duty, the risk of paying duty on the selling price of the goods, rather than the cost price, and the risk of stock losing GSP (Generalised System of Preferences) relief on entry into the European Union. Next is mitigating these issues by continuing its use of bonded warehouses; it has set up a German company to take on most of the EU sales and is setting up bonded warehouses there. Commenting on compliance with regulations needed to set these up, the company said: “This depends upon the jurisdiction, but typically an application has to be made to the authorities, and checks are completed by them to ensure the goods are held securely.” It is also setting up an Eire company to do the same. In order to avoid double duty and the loss of GSP, it plans to pre-allocate stock to the German and Eire companies so that they would only pass through the United Kingdom in transit. This last would entail an accurate prediction of stock needed by those companies, which would be challenging.
Companies would be wise to take a page from Next’s Brexit paper and begin to ready for the possiblities.