Why Your Business Should Plan for Maximum Change
In this Article Christopher Connolly, Donna Hemphill and John Stewart look at the impacts of Brexit and the importance of Brexit planning for business.
On 23 June 2016, the people of the United Kingdom (UK) voted to leave the European Union, a decision which shall in some form or another, have a profound effect on the Irish economy and the businesses that operate within it. Two years on from the vote and we still do not have a clear picture of the UK’s relationship post Brexit with the European Union and how the border on the island of Ireland will operate. A transition period until 31 December 2020 has been agreed during recent negotiations and the draft withdrawal agreement proposes ‘an area without internal borders in which the free movement of goods is ensured’ between Ireland and Northern Ireland. This ‘backstop’ solution will continue until an alternative solution can be negotiated between the EU and the UK. However, this solution will only cover trade on the island of Ireland and does not provide certainty of the future trading relationship with the UK.
The impact of Brexit for individual businesses will vary depending on a range of factors including the level of trade to and from the UK for the business, its customers, its suppliers and its competitors. Uncertainty regarding the future trading relationship with the UK has meant that many business have put future investment and development plans on hold until there is further certainty around the expected trading relationship post Brexit.
The impacts of Brexit on the Irish economy have been investigated in a report published recently by the Department of Business, Enterprise and Innovation titled “Ireland and the Impacts of Brexit”. The report states that Ireland’s trade with the UK, will be adversely affected in all exit scenarios and that if there is a hard border Ireland’s exports to the UK could fall by more than 50%.
One possible scenario is that in just over a year’s time, on 29 March 2019, the UK will leave the EU without an agreement on its terms of exit. A consequence of not achieving an agreement is that customs duties payable on goods going from Ireland to the UK and vice versa could then be based on current World Trade Organisation rates and border checks will be unavoidable, resulting in a significant increase in the cost of goods and a barrier to trade. The effects of Brexit may not be limited to these issues and businesses should begin Brexit planning as soon as possible. To quote Lee Child’s character Jack Reacher, when planning for Brexit businesses should “Hope for the best, plan for the worst” which is a prudent approach to be adopted in a time of uncertainty.
Our advice for businesses trading with the UK is, when undertaking Brexit planning, that they should assess topics such as supply chain implications, the potential impact from legal, logistical and a pricing perspective, customs documentation requirements, IT system changes and increased administration and compliance costs. The extent of these issues will vary dependent on the details of your particular business. Despite the uncertainty, there are certain steps that businesses can undertake when planning for Brexit:
1) Analyse outbound and inbound supply chains
2) Quantify the cost of tariffs on your products using data analytics
3) Consider applying for AEO / ‘trusted trader’ accreditation (bearing in mind that this can take up to a year to achieve)
4) Look at the available customs reliefs such as warehousing or processing. The use of customs regimes can improve cash-flow and mitigate the duty costs
Government bodies North and South of the Irish Border recognise the importance of Brexit planning and grants are potentially available to business that wish to engage advisors to assist them to prepare a Brexit plan.
Based on our experience of dealing with clients in all sectors we see that very few businesses have taken any action so far to plan for Brexit. A recent article published in the Irish Times titled “Many firms ‘have their head in sand’ over Brexit, warns Central Bank” supports our experience that businesses have done very little to prepare for Brexit possibly influenced by the expectation that there will be no hard border in Ireland. As the analysis above highlights regardless of the final exit scenario, the trading landscape with the UK will be more complex for Irish businesses.
To assist Deloitte have prepared a multidisciplinary questionnaire, which will provide us with a better understanding of your business and will enable us assess the impacts Brexit could have on your business. Once the questionnaire is complete the responses can be used by our multidisciplinary team to prepare a detailed plan for your business looking at a number of key areas impacting your business to mitigate the risks of Brexit.
To conclude, the most-immediate questions are:
a) What potential impact will Brexit have on your business and;
b) What plans has your business made to deal with those impacts
Businesses which have prepared a Brexit plan will be in a better position to manage the impacts of Brexit and succeed in the post Brexit era.
To discuss the above in more detail please contact Christopher Connolly, Donna Hemphill or John Stewart.