Putting the X into Brexit

Published by Rupert Moyle on 12 November 2019

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The upcoming election on 12 December will inevitably focus on the progress – or otherwise – of Brexit. How people vote will dictate the way forward, planned or not.

Key actions for Brexit for November 2019 onwards:

The upcoming election on 12 December will inevitably focus on the progress – or otherwise – of Brexit. How people vote will dictate the way forward, planned or not. The UK could still leave with no deal if the withdrawal agreement is not approved by 31 January 2020, or at the end of a transition period. Never has an ‘X’ been so potentially influential for business and the economy.

While the chances of a ‘No deal’ scenario seem to have receded in the past weeks, it still remains a risk, so we have provided an update on some of the key aspects of business operations which will be affected – deal or no deal – along with some planning points to consider for small and medium sized business.

We are also keen to know your views on international trade – and your future ambitions for trading inside and outside the UK, so do please complete a short survey and we’ll be able to collate the views of UK business on international trade – at a crucial time.

For UK businesses, especially those trading in goods across the EU, it may seem that the pressure is off, now that the UK has been granted a ‘Flextension’ until the end of January 2020 to agree its withdrawal deal. But nothing is certain yet and the transitional period following a deal is likely to be quite short, possibly only to the end of 2020. This will pass by very quickly. Our concern is that businesses that were not prepared for the potential cliff-edge moment on 31 October will continue to be unprepared when we do actually leave the EU. The Government’s own Brexit planning site is available.

The time to review your processes is now if you want to ensure you can continue to trade effectively with your suppliers and customers: identifying and resolving all of the issues associated with your supply chain is no small task. This means considering all aspects of how you and your suppliers/customers wish to trade, discussing barriers that exist, whether that be to do with GDPR, currency fluctuations, intellectual property rights, added duty costs, establishment and customs clearance issues, or the need to revise contracts.

You also need to take your compliance obligations as seriously as you do in the UK, such as whether you sell into the EU and find there is a need to set up an EU subsidiary to meet EU legal obligations, or to VAT register in (possibly a number of) EU countries.

Once you have identified the potential barriers it may then be appropriate to revise your supply chain structure to avoid what could be significant compliance and duty costs. These issues will depend on your particular business, the status of your suppliers and customers and the Incoterms with which you trade.

We have set out several of the key issues you may face via the links below.

Supply chain implications

With company stock levels already high after March’s abortive exit date, some companies will have limited capacity (space and cash) to maintain or increase stock levels in anticipation of longer supply chains. Those with Just in Time manufacture or supply will have already planned for this aspect. The key concerns remain about the arrangements for those with perishable supply or products.

Our five-point plan:

• Understand the economic origin of your goods, whether finished, raw materials or consumables, and work out where they must cross customers borders to reach you / your customers

• Review the terms of the contracts you hold with your suppliers and with your customers. What can you change, or what do you need to change?

• Itemise your new obligations and the systems and people needed to take these forward, for example, with an EORI number you can apply to move goods more quickly in or through EU using the Common Transit Convention (CTC)

• Are you eligible for any of the reliefs from duty?

• Look to apply for Authorised Economic Operator (AEO) status: This could speed up customs processes for your goods.

Customs and duties

HMRC now says that it has automatically registered 95,000 businesses for its simplified import procedures, allowing most traders up to six months to pay import duties and submit customs declarations.

The scheme, known as Transitional Simplified Procedures (TSP), will make importing after Brexit much simpler, particularly for businesses who would be completing customs processes for the first time. Up to now, businesses have had to apply for it – over 30,000 had previously registered.

This TSP scheme will allow most businesses up to six months to send in customs declarations and pay any customs duties to HMRC after importing goods from the EU. This will prevent congestion at the border when goods enter the UK.

The government has chosen to automatically enrol VAT-registered businesses which import from the EU into the TSP scheme as it is the best option for businesses which are new to customs processes and haven’t yet appointed a customs agent. Businesses which are not registered for VAT should apply for the scheme if it would benefit them.

But it’s not all automatic. Businesses now registered for TSP are UK-based traders who HMRC has a record of having imported goods from the EU in 2018.

HMRC has sent letters to these traders with further details of their TSP registration, and they only have to take a few simple extra steps – such as checking if their goods attract tariffs and getting a Duty Deferment Account if they do – to make sure that they are ready for the Brexit date.

Guarding data and intellectual property

The UK Information Commissioner’s Office (ICO) has provided clear guidance for organisations looking to transfer data outside of the EU.

The government has said that transfers of data from the UK to the European Economic Area (EEA) will not be restricted. However, if we leave the EU without a deal, GDPR transfer rules will apply to any data coming from the EEA into the UK. You need to consider what GDPR safeguards you can put in place to ensure that data can continue to flow into the UK.

In the event of a deal, the ICO has provided guidance, depending upon the size of your business and whether your interaction is with EU, EEA, or countries outside these, so the actions will vary. Most situations can however be covered by the adoption of Standard Contractual Clauses (SCCs) which will keep data flowing into the UK. The ICO has template on its website that can help you with these. _ Data and ‘no deal’_ If someone in the EEA sends personal data to someone else who is outside the EEA, they must comply with GDPR rules on international transfers of personal data. The ICO has created a tool to help smaller companies which import data from within the EEA to the UK, by creating some standard contractual clauses which should be put in place before withdrawal. Their site also includes Word templates for these clauses.

Trademarks and registered designs

The revised agreement (‘deal’) on the withdrawal of the UK from the EU indicates that both the UK and the EU favour providing EU (European) Trademark and Community design holders (both registered and unregistered) with an equivalent UK right once the UK leaves the EU. So there should be no immediate implications.

No deal IP

The UK Government has enacted regulations to protect the EU Rights in the UK which will take effect in the event of a no-deal Brexit. EU Rights that are registered or protected in the EU on Brexit day (Registered EU Rights) will automatically be treated and enforceable as though they were registered in the UK (Corresponding Registered UK Rights), with the same renewal dates and priority claims, subject to a right to opt out.

Pending applications for the registration of EU Rights will not be converted into corresponding UK applications but the applicant will have nine months to apply for registration of the same trademark or design in the UK on the priority of the corresponding EU application.

In the case of new applications, if companies wish to protect their trademarks and designs in both the UK and the EU, many IP lawyers suggest filing parallel UK and EU applications now.

Workforce planning

It is now clear that EU nationals should be free to come to the UK to live and work until the end of 2020, even if there was to be a no deal Brexit.

EU nationals not resident in the UK before 11pm on 31 October 2019 will continue to be able to enter the UK to live and work without requiring a visa until 31 December 2020. However, a person who moves to the UK after a no-deal exit and wishes to remain resident beyond 31 December 2020 will need to apply under the new European Temporary Leave to Remain scheme (Euro TLR). This is a revised version of a similar temporary scheme announced by Theresa May’s Government earlier this year.

It seems that the deadline for Euro TLR applications will be 31 December 2020, irrespective of the date when the person entered the UK after Brexit. Euro TLR will grant the holder permission to remain in the UK for 36 months with the ability to study and work.

At the end of this period, holders of Euro TLR wishing to remain in the UK will need to apply for further permission to remain in the UK under the new immigration system (expected to be implemented on a phased basis from January 2021). Details of the new immigration rules and any switching requirements are not expected to be published for several months. The Government has indicated that time spent in the UK with Euro TLR status will count towards residency requirements for future indefinite leave to remain/settlement applications.

Currency volatility

With the strength of the pound closely following the ebb and flow of Brexit negotiations, what can one do to manage currency risk. Currency hedging has a finite life – 1-2 years at most. So what else can be done?

One lateral-thinking idea is to work back from a sale price/margin, which tells you the buying price you are prepared to make – and provides a yardstick with which find alternative sources of supply / production.

One could also look for currencies which mirror closely the state of the pound (known as natural hedging’) and look for sources of supply willing to trade in those currencies. There is rarely 100% alignment – but it will help. You may for instance want to denominate an order in dollars, not sterling, if that helps.

If you have any questions or for more information, please get in touch with us here.

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