Bridge

Radio silence in the Brexitstorm

  • Leon Kanters, Partner |

3 min read

The chances of a Brexit deal are increasing, despite the complete radio silence surrounding the negotiations between the EU and the UK. Meanwhile, questions are piling up. What will the Brexit mean for IT systems, VAT or business travel?

Now that 1 January 2021 is fast approaching and there is still no 'deal', the tension is increasing in the UK. Tim Sarson, Value Chain Management Partner at KPMG UK, and Leon Kanters, Brexit specialist at KPMG, think they know what the status of the Brexit negotiations is. Kanters notes ‘that there is a kind of radio silence after the negotiations were broken off earlier. No news is actually coming out. I do expect progress to have been made in the negotiations. There is no guarantee, but I see the chances of a deal increasing'.

Sarson: 'Sounds are coming out from the government making it clear to the people that concessions are being made. For example, the UK seems to be winning on fisheries, but is making concessions on the issues of government support and level playing field’. According to Sarson, ‘a possible election victory for Joe Biden in the American presidential elections also plays a role in the background. If there is a no-deal, the UK will find itself in an isolated position. Everyone knows that Boris Johnson has a good relationship with President Donald Trump. That increases the pressure to come to a deal'. 

Preparation in the IT field

Olaf Klooster, senior consultant at KPMG and specialized in IT and tax, looks at the approaching Brexit from an IT perspective. KPMG's Brexit Runbook helps to prepare companies and their SAP software for the end of the transition period. It identifies all relevant topics in a checklist, includes a technical guide to help implement changes in SAP and has timeline with actions to take.

Taxes

Until now, the focus on indirect taxes has mainly been on customs and how that will affect business. Could the Brexit lead to additional VAT registration obligations and could it lead to sticking VAT costs? This is a particular problem for companies wishing to deliver to their UK customers on Deliver Duty Paid inco-terms, where title and ownership remain with the seller until the goods are delivered in the UK. Currently this trade would be reported as a "dispatch" from the EU. The seller can do this transaction at the zero rate as long as they adhere to the normal rules.

Karen O'Neill, Indirect Tax Senior Manager at KPMG UK: 'As of 1 January the same transaction can be considered an "export" from the EU. The main difference now has to do with the UK Tax Administration's HMRC policy on reclaiming VAT on imports. Only the person who owns the goods on arrival in the UK can reclaim import VAT, i.e. the seller, resulting in that person having to register for UK VAT to maintain their preferred incoterms.

Various other activities including drop shipments involving the UK, UK call off stock arrangements and B2C sales to UK customers may also require EU suppliers to have to register for UK VAT as a consequence of Brexit.

So before you can even reach the point where you need to ensure your systems are ready, you need to make sure you understand how Brexit is going to affect your supply chains'. 

Travellers and employees

Where there are also many questions, especially in HR departments, is on the issue of immigration. Robert-Jan de Wit, Director at KPMG Meijburg & Co, explains the impact of Brexit on international employment from a Dutch perspective. Residents of the UK who already live and work in the Netherlands are granted a work permit.

Existing frontier workers (business travelers) between the UK and the Netherlands can continue to do so. For this purpose, they must register with the Dutch Immigration and Naturalization Services. It is different for frontier workers, business travelers or employees starting after 1 January 2021. Both for a deal and a no-deal Brexit. Everyone should be aware that on that date the UK will become a 'third country' for which the normal immigration procedures apply. As a company, you can prepare for that now. Make an inventory of employees who are going to travel to the UK or the Netherlands and see which procedures can already be applied for,' says De Wit.

This was KPMG's third Brexit Update Call, which takes place every two weeks. Topics discussed include import, labor, supply chain and financial services. The fortnightly call takes half an hour. The next one will take place on November 12th. Subscribe here.