Brexit continues to create uncertainties. For example, there is still a great deal of ambiguity about what the new relationship between the United Kingdom (UK) and the European Union (EU) will look like from 2021 onwards. Many companies are therefore taking a wait-and-see attitude. Nevertheless, the outlines of Brexit are gradually becoming clearer. From 1 January 2021 a lot will change, with or without a trade agreement. A good preparation on all possible aspects of Brexit is of great importance in guaranteeing the continuity of your company.
The UK left the EU on 31 January 2020. At the moment we are in a transitional period, during which negotiations are underway to define the new relationship between the UK and the EU. These negotiations are underscored by many issues that need more clarification. For companies that have a link with the UK, the uncertainty is increasing. However, we can state unequivocally that a lot will change on 1 January 2021, with or without agreement on the new relationship between the UK and the EU.
Negotiations on a trade agreement between the EU and the UK still face many obstacles. "The positions are very far apart on several fronts. Whether a fully worked-out agreement is on the table by 2021 is therefore highly questionable," explains Jeroen Gobbin, Partner and Head of Indirect Tax. "The British, for example, would like to deviate from the rules of the EU's internal market. This could put European companies at a competitive disadvantage after Brexit. The European Commission absolutely wants to prevent the UK from becoming a 'Singapore to the Thames.'”
In addition, there are many other issues that need to be solved. People and migration were at the heart of the Brexit saga from the very beginning. Migration also remains a sensitive issue during the negotiations on a potential trade agreement. At the same time, the customs formalities concerning Northern Ireland are causing difficulties. An open border without border controls is of great economic importance for Ireland and Northern Ireland. Nevertheless, the EU wants to introduce a limited border control. The introduction of a hard border is in contrast to the Good Friday Agreement of 1998, a symbol of peace between Ireland and Northern Ireland. Both countries fear that a hard border will reignite tensions. It is also not yet clear what role the European Court of Justice will play in the framework of a future agreement.
In the meantime, we can assume that the United Kingdom will no longer be part of the European Union's internal market. In addition, the UK will no longer participate in the Customs Union. This means that whatever else is agreed to, there will be a hard border between the UK and the EU and that the UK will therefore be regarded as a “third country” by various European and Belgian authorities. After the transition phase, a lot will change for companies in this area. Doing business with the UK will then be completely different than before Brexit. A hard border means that new formalities and procedures will be required for goods or persons wishing to cross the border into the UK. Customs formalities at the borders will also become unavoidable.
The final outcome of the negotiation process between the EU and the UK is difficult to predict. Nevertheless, it would be better to prepare for all possible scenarios. If you do not yet have a Brexit strategy, you risk jeopardizing the continuity of your organization. For example, there will be many changes in VAT and customs regulations. In addition, your supply chain may be severely disrupted by customs checks at the border. Moreover, the impact on your workforce should not be underestimated. A tightening of regulations and compliance make the above elements even more complex. A number of concrete steps are therefore needed to ensure that your company is ready to meet the Brexit challenge. And KPMG can help you on your way.
According to Jeroen Gobbin, good preparation for Brexit starts with a proper “mapping” of all connections between your organization and the United Kingdom. This organizational mapping shows all links with the UK in terms of suppliers, customers, goods movements, IT systems, General Data Protection Regulation (GDPR), etc. In the mapping phase, KPMG can help you investigate potential disruptions. For example, we examine how changing VAT and customs formalities can affect your business results and pricing. We also help you to obtain the necessary permits to smoothen the customs process. Incidentally, if you have no experience with customs clearance, we recommend that you work with a partner who can arrange that for you.
In addition, we need to look at how dependent you are on UK customers and suppliers. If British clients represent a risky, large part of your portfolio, you need to diversify your client portfolio. You may also need to correct your business processes and supply chain. For example, investigate the potential impact of Brexit on delivery times and inventory, and based on that analysis, you may consider building up strategic stocks of UK raw materials.
Furthermore, it is very important to analyze the impact of Brexit on your employees. "The more complex mobility situation will certainly have a major impact on companies and their employees," underlines Jeroen Gobbin. "The UK will be a third country. That means extra paperwork, more formalities and a longer turnaround time will be required to deploy someone from the UK. Also consider whether your organization needs to take action to address the immigration or social security status of your employees on both sides of the Channel to ensure the continuity of your business."
From detailed mapping, concrete action points must then be distilled. These action points are very diverse. For example, a lot of documents and permits have to be applied for. In addition, a customs declaration must be supported by a lot of data that a company may not immediately have at its disposal. A change in VAT rates can also involve a change in certain processes and IT systems. Moreover, the various action points that an organization needs to take must be addressed as a matter of urgency.
Once the concrete action points have been drawn up, these tasks and responsibilities must, of course, be assigned. Jeroen Gobbin advises not to assign them all to one person, but to put together a multidisciplinary team. "A multidisciplinary team is the best way to allocate responsibilities. People from different departments within the company can thus immediately communicate the impact on their department. It gives a greater guarantee of good collaboration in the areas of logistics, IT, taxation and regulations."
A well-planned Brexit strategy can help ensure the continuity of your company. "Companies that have prepared themselves well for Brexit are even starting to see this as a competitive advantage," says Jeroen Gobbin. KPMG can help you analyze the impact of Brexit on your business. KPMG's multidisciplinary team includes specialists in tax, regulatory, IT and change management. They closely follow the developments surrounding Brexit and can help you meet each challenge throughout the process of preparation, no matter how the negotiations progress. KPMG's expertise and integrated approach offer you a wide range of solutions to properly assess the impact of Brexit. In this way, you can optimally prepare yourself for possible disruptions caused by Brexit.
"The fact that many Belgian companies are still hesitant about Brexit is understandable, but risky. Waiting for clarity about a possible trade deal between the EU and the UK is no longer an option," says Gobbin. "Organizations should focus on the data that is already known about Brexit, and not on the uncertainties related to a possible trade agreement. At the moment, companies can already estimate fairly accurately what impact certain future Brexit formalities will have on their organization. That's why my advice is: don't wait and see, but act today!”