Don't panic: Act quickly and decisively has been saved
Don't panic: Act quickly and decisively
As we approach the deadline, Sean Smith, Deloitte Ireland's Brexit lead, offers guidance on a few common concerns
Q. It’s a tall order, but what are some of the key things that Irish companies should do to prepare for Brexit, if they haven’t already, as the clock winds down?
The first thing I would say is don’t panic, there is still time to prepare. Companies will have to act quickly and decisively however, over the coming weeks. A good place to start is the various excellent Brexit resources that are available on websites like Gov.ie, IBEC and our own Deloitte Brexit page. There are various updates, checklists, financial supports, training and contact details that will be essential to developing out your plan.
Most companies don’t realise that 70-80% of what Brexit will entail is already known irrespective of the outcome of the political negotiations. Companies should focus on building their plan around that 70-80%. For example, we know that there will be customs checks and processes, there will be changes to VAT, etc. At this stage, it may not be possible to achieve everything in your plan before the end of the year, so it may be necessary to prioritise addressing the goods and services most impacted by Brexit.
Firms should also prioritise any necessary authorisations or registrations at this point. All businesses/traders, whether they import or export, must register with Revenue and secure an EORI (Economic Operators Registration and Identification (EORI). This number is valid throughout the EU and is an absolute essential when trading in other jurisdictions. It is used as a common reference number for interactions with the customs authorities.
Firms should also focus on their imports, and particularly import declarations, whichwill be a significant change for many businesses unfamiliar with trade from third countries (i.e., a non-EU state). This will involve understanding whether it is your firm’s responsibility to make the import or export declaration and ensuring it is complete and accurate. Import declarations are very specific and errors often lead to Revenue audits, penalties and possible disruption to timely deliveries.
Whatever happens over the coming weeks and months, it’s likely that confusion and uncertainty around trading will continue well into 2021 as firms become familiar with the new rules and new processes are rolled out in the UK and EU. So our view is that there is time, but firms need to plan quickly based on good information, prioritise their response on the highest impact areas and get ready for a bumpy start to 2021.
Q. Will there be significant changes to the UK VAT system?
There will be some changes in the UK VAT system that will affect particular transactions and will be significant but there won’t be wholesale changes. Sales of goods between UK and Ireland will become imports and exports rather than EU sales. There are special VAT rules coming into force for Northern Ireland and all businesses trading in NI should try to make themselves aware.
Q. The imposition of customs duty on sales of goods to or purchases from the UK will likely bring significant challenges. How can Irish businesses prepare for this?
Customs duties will be a significant challenge for all businesses at each import-end unless a Free Trade Agreement (FTA) with zero tariffs and zero quotas is agreed. Duty rates can vary considerably depending on the product, but clothing and food products are impacted significantly. Irrespective of the FTA, other costs may be incurred by way of customs clearance agents’ fees, veterinary and sanitary/phyto-sanitary/SPS certifications. However there are established and recognised Revenue procedures that can reduce the burden e.g., deferred payment of import charges, warehousing, Inward/Outward Processing, Temporary Admission to mention a few. Ultimately firms will need to evaluate whether these costs can be subsumed, and if not, whether the firm needs to find cost savings elsewhere to reduce the impact or source alternative markets/suppliers.
Q. How can business in Ireland prepare for supply chain disruption?
I think the starting point is to understand the impact that Brexit will have on your supply chain – will it mean delay, additional costs or additional paperwork? It’s unlikely that firms will have sufficient time in the short term to make material changes to their supply chain if they have not already started, so the focus should be on making the UK elements work and adapting the business model to incorporate the new costs and delays. This may mean getting comfort around the Brexit plans of those firms responsible for the UK elements. Where this disruption impacts the viability of the goods, then firms will need to take a more strategic approach and possibly source non-UK suppliers/buyers. Many companies that had stockpiled for Brexit have seen their stocks eroded due to COVID, so a stronger focus on this over the coming months will help bridge the gap. I mentioned “warehousing” earlier and an approved warehouse can provide a number of benefits when managing supply chain disruption. Ultimately companies may use this opportunity to take a longer term look at their supply chains considering the impacts of Brexit, COVID19 and Climate Change impacts, to name a few.
Q. Given the degree of interdependence in trade between Ireland the UK, what are the key risks businesses here should identify and prepare for?
I think that interdependence creates risk and there is significant exposure to the UK, particularly in certain sectors like agriculture, pharma and retail, but we should also remember that many of these relationships have grown over time – we share the same tastes as the UK and they are going through the same level of uncertainty as we are. So in that environment companies will be looking for certainty and may be willing to accept the increased costs and potential delays associated with it. Companies that work with their suppliers/buyers to make the transition as seamless as possible will be more successful. This is one of those moments that matter for the future relationship.
Q. While the terms of the final Brexit deal have still to be worked out, there are significant “known knowns”, as well as “known unknowns”. Can you talk us through some of these?
At this stage we know quite a bit, we know that some form of customs processes will be required, we know there will be restrictions on the free movement of people (other than those covered by the Common Travel Area and between Ireland and Northern Ireland), regulatory approvals will be required to sell into the UK, the VAT system will change and the UK will leave the Common Fisheries and Common Agriculture Policy. The known unknowns tend to center around whether there will be a FTA or not. At this stage my own view is that any deal that might be achieved is likely to be relatively high level and to cover quite a narrow set of topics, the key focus being on quotas and tariffs. That means there could be a third category of “never knowns” where firms will need to fill in some of the pieces for the topics covered, and for topics not covered they might revert to World Trade Organisation rules or result in future tweaks to the FTA. Whatever the outcome, firms will need to be prepared to act, despite significant uncertainty over the coming months.
This article first appeared in the Business Post on November 1st, 2020