Brexit: Keep preparing for every eventuality

Brexit: Keep preparing for every eventuality

Rob Janering of Accordance VAT has prepared a checklist to get ready for Brexit - whatever happens next

Brexit: Keep preparing for every eventuality

It’s been a tumultuous two weeks in the UK Parliament and Europe, trying to determine a Brexit outcome.  As with the 2016 vote itself, there were some close votes and there have also been more changes in approach and ways forward proposed from the Government, parties within parties and the EU than occur in a good novel.

However, with last week’s EU Summit declarations finished, and the dust settled (for the moment), it’s time to take stock again.  There is still plenty of uncertainty in the air and the risk of a hard Brexit/no deal exit remains high.  Therefore, businesses should continue to make Brexit planning a priority even if this means “gaming” a number of scenarios and being prepared for a number of eventualities.

How is VAT impacted by Brexit?

For VAT purposes, any type of Brexit is likely to have significant impacts because of the way it interacts with nearly all transactions made by businesses trading across the EU.  Many different situations may unfold under differing timescales and hence mapping these now in order to be prepared and ahead of the pack might just be the difference between continuing to trade smoothly or facing blocked supply chains and increased costs when or if the UK finally Brexits.

What is the current position?

Three key votes took place in Parliament two weeks ago.  A motion to not leave under a no-deal situation was passed but at the same time, the prime Minister’s Withdrawal Agreement (WA) was voted down for a second time.

To prevent this happening, Parliament instructed the Government to ask the EU on Thursday 21 March for an extension to the UK’s Brexit date.  The UK asked for an extension to 30 June, but this was rebuffed by the EU. Instead it was agreed that an extension to 22 May can happen if the WA agreement is passed.  If that doesn’t happen then the UK will leave the EU on 12 April.

If the WA isn’t agreed to then it will involve the UK leaving without a deal unless something changes in the meantime. This could only be the UK revoking Article 50 or asking for a significantly longer extension because it is going to have a general election, second referendum or some other significant development will occur (i.e. negotiate for a different outcome, such as Labour’s proposed Common Market 2.0).

What planning to undertake?

Our view is that the chance of a no deal Brexit still remains significantly high.  This is because the UK Parliament will need to agree on a position very soon, before 12 April, which is something it has failed to do so far.  Alternatively, if the WA is agreed to then Brexit will take place on 22 May but that just gives certainty for a set period of time up to 31 December 2020.  After that there could be a no deal scenario take place, albeit this would depend on the backstop position in Northern Ireland.

The fact the UK has got perilously close to the previous deadline with no position agreed upon suggests it is very likely that again a final decision on what happens will also be determined at the last minute.  In short, the uncertainty is going to continue.

There are a myriad of actions businesses should take to help best manage this uncertainty.  These are set out in detail on our website but some key steps to take include:

  • Map existing supply chains

This will highlight where transactions take place and allow the implications of a hard Brexit to be overlaid.  Supplies which involve the movement of goods from the UK to the EU and vice versa will be hit the hardest, becoming exports and imports respectively.  Customs procedures, tariff costs and who is the importer of record will need to be considered;

  • Obtain Fiscal Representation

Many EU Member States insist that non-EU businesses that are registered for EU VAT do so via a Fiscal Representative (FR).  The FR will often take on joint and several liability with the business and hence costs are higher and guarantees need to be put in place.  Belgium and some other Member States are proactively telling registered UK businesses to appoint a FR now ahead of no deal, otherwise existing VAT registrations will be invalidated;

  • Consider the customer experience

B2C sales of goods delivered from the UK to the EU currently covered by the distance sales rules will become imports and exports.  Unless the supply chains are adapted appropriately, the customer may end up not receiving goods (they could be stopped at the borders) or they will be saddled with unexpected import VAT and duty costs levied which must be paid before the goods are delivered;

  • Refund claims

At the moment UK and EU businesses can recover VAT incurred in other EU Member States under the EU Refund Directive.  This is a relatively straight forward process where claims can be made electronically via one single tax authority.  After a hard Brexit, claims will need to be made under the far more complicated 13th Directive legislation and hence amounts of VAT which previously were recovered could be lost if there are issues of reciprocity or receipt of the refund delayed; and

  • Adopt new procedures

In the event of a hard Brexit new procedures will apply.  For instance, suppliers of goods into the UK where the value of the parcel is under £135 will have to register and account for import VAT, new EORI numbers need to be obtained and the declarations required will change (i.e. no more Intrastat and EC Sales Lists in some situations, but different boxes on VAT returns to be completed).

All in all, the way ahead for UK and EU businesses still looks confused and uncertain.  Planning shouldn’t be paused or slowed because of recent events in Parliament but rather escalated so as to be ahead and prepared should or when a hard Brexit occurs.

The steps outlined above should act as the first steps on any business’s checklist for Brexit preparation. Those wishing to take preparations up a notch should consider conducting an impact review. We have further advice and information available on our website.

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