UK manufacturers are running out of time to prepare their supply chains for Brexit with less than two months to go until the transition period ends. Due to Covid-19, the need to focus on handling pandemic-related disruption caused some to fall behind with their plans – so what should they do now?
Thoughts of many manufacturers have now turned back to Brexit preparations after HMRC’s recent correspondence issued to all UK businesses trading in the EU. Earlier this month, the importance of manufacturing leaders not burying their heads in the sand when it comes to their procurement arrangements was highlighted by new findings from trade consultants, Blick Rothenburg. This research highlighted the potential importance of setting up an EU presence to UK businesses if they want to continue delivering goods to European markets after Brexit.
New Border Operating Model
A new Border Operating Model will come into effect from 1st January 2021. In the event of a ‘no deal’, starting from this date the UK will operate a full external border and movement of goods between the UK and EU will be subject to new controls. These controls include the need for businesses to meet basic customs requirements when importing standard goods, such as completion of official import declarations and to consider how to account for and pay VAT on imported goods.
Manufacturers that fail to plan in respect of these changes risk damaging established relationships with suppliers and customers. Businesses will need to identify a strategy for creating a plan for international trading from 2021 and must move swiftly as this will take time.
Will your imports be impacted?
While Brexit is likely to affect many different areas of UK manufacturing, industries who import parts from the EU such as aerospace and automotive could be at particular risk. Organisations who import products for processing and repair before shipping them for sale in the EU could also find that they need to adjust their operational footprint. Local regulations can differ significantly between Member States, so it is important that businesses decide which jurisdiction is the best fit. They must also consider implementing a suitable supply chain, and manufacturers should seek support from advisors with an international reach.
Possible changes to VAT and customs duties
It is also important that businesses start to consider what changes could be made to the treatment of VAT and customs duties from the start of next year. They should be reviewing supply chains in order to identify where tariffs such as import VAT and customs duties could apply. Customer and supplier contracts should be closely assessed to determine which party is the ‘importer of record’.
Businesses should consider whether obtaining VAT registrations in other EU Member States might be of benefit, and if they haven’t already done so businesses should attempt to secure the relevant Economic Operator Registration and Identification (EORI) numbers. When preparing to pay or account for VAT on imported goods, VAT registered importers may want to make use of the proposed Postponed Import VAT accounting facility from 1st January 2021.
The need for an EU presence as a UK manufacturer
UK manufacturers acting as importer of record may need to establish an EU presence, allowing goods to be directly imported into the EU. However, it must be remembered that different member states will have different local rules as to what this involves. For example, in some locations, there is a requirement to be established, or represented, in some way, while in others it may be necessary to set up a subsidiary company as an EU office. In order to minimise the risk of supply chain disruption and to protect continuity it is essential that companies seek the right expert advice.
Are your trading relationships viable?
Manufacturers must evaluate the financial viability of their trading relationships where additional costs are being incurred. For example, if businesses need to pay freight forwarders to assist them with making customs declarations, they may need to decide whether the additional cost will be passed onto customers by way of higher prices for end products. An option that businesses should be taking full advantage of is deferring payments of duty and tax where they can. This will enable them to spread the cost of compliance when paying customs charges including import VAT, customs duty and excise duty.
What to consider when expanding into the Eu?
Where manufacturers are considering extending their footprint into the EU, they need to weigh up factors such as corporate and employment taxes that may arise from becoming established and when meeting future staffing needs. It is also important to consult HMRC guidance carefully and on a regular basis as HMRC is still making grants available for IT and training relating to the new import and export declarations processes. Manufacturers may also wish to investigate the Government’s Freeport proposals, which could allow them to import goods for process and assembly purposes tariff-free, followed by local sale, or tariff-free export.
Manufacturers must accelerate their Brexit planning now, as the transition period draws to a close. Some will have more to do than others, but all businesses should consider the impact of Brexit on their supply chains and their financial viability to ensure they are ready to maintain profitable operations when the time comes.