New thinking

Understanding Brexit

What are the implications for the movement of goods and people?

Here, I speak to accounting professionals in Europe and the USA to examine the key issues for companies.

After four years of intense negotiations, the UK completed its departure from the EU on 31 December, 2020, to enter a complex new Trade and Cooperation Agreement (TCA).

The new arrangement essentially affects companies that:

  • Sell goods or supplies services to the UK
  • Buy goods or receives services from the UK
  • Move goods through the UK
  • Use UK materials and goods to trade under preferential schemes with EU partner countries

Full details are published on the UK Government website. However, the sheer complexity of the deal would suggest companies affected are going to need all the help they can get from accounting professionals to navigate the post-Brexit world, especially regarding tariffs, the movement of people, and imports and exports.

While the new arrangement provides a way forward, there are many grey areas and a great deal of confusion.

Concerns have been raised over how it will work in practice, both now and in future.

Are companies prepared?

Steffen Ahrens, Partner at FALK in Germany, says that while many businesses are reasonably well prepared for life after Brexit, having gambled on at least some form of deal being struck between the UK and EU, there is still a great deal of uncertainty concerning future cross-border trading.

“As a rule of thumb the bigger the company, the better they are prepared. The smaller the company, the less they are prepared and the less they may be exposed to the consequences of Brexit,” he says. “What we have seen since June 2016 (the date UK citizens narrowly voted in favour of leaving the EU) is new investment circumventing the UK and going elsewhere while some UK firms have set up entities in continental Europe, just in case. However, the UK continues to be, and will remain, a big market for Germany.”

Jason Drake, Partner and International Practice Leader at Plante Moran in the USA, says: “People are trying to digest what the new arrangement means, especially things like mobility and the movement of people. We are trying to deal with it proactively by reaching out to clients that we know have UK subsidiaries.”

The main concerns of businesses affected by Brexit are:

  • Quotas and tariffs
  • Mobility
  • Imports and exports
  • Customs and VAT
  • Data protection
  • Supply chain management

Quotas and tariffs

The cornerstone of the new deal is no quotas and no tariffs, with both sides agreeing basic minimum environmental, social and labour standards required.

However, there are no guarantees this will remain in place in future. Steffen is hopeful that the no quota/no tariff arrangement will be adhered to “as if the UK had never left the EU”, but he warns that should the UK drive away from EU standards, it could lead to disagreement and potential problems for cross-border trade.

He points out that while the current tariff agreement between the UK and the EU stipulates no customs/duties, this relates only to products originated in Great Britain (GBR).

A protocol exists whereby Northern Ireland (NI) remains in the EU single market for goods and also applies EU customs rules at its ports, even though the region is still part of the UK customs territory.

Not all goods from GBR can be imported duty-free into the EU, but only those that comply with the rules of origin laid down in the agreement. These rules of origin specify a certain degree of processing that must have taken place in GBR.

Duty or not, all goods that cross the border between the GBR and the EU are now subject to a customs-clearing procedure which will create (digital) paperwork and delays, Steffen says.

He adds that companies based in the EU and elsewhere will be concerned about whether they can “continue to do business with the UK in the usual way or whether the UK government is going to move in the direction of encouraging British people to buy British to stabilise its economy”.

There are also concerns in the USA regarding possible future tariffs. Jason cites the example of an automotive company which does some of its assembly in the UK, importing parts from around the globe, and selling in the UK and EU. Steffen explains: “What they are trying to understand is if they ship to other countries, are they going to have to pay a tariff in future, and if yes, will it be necessary to recommend relocating assembly to a different country?”

Mobility

There are further concerns over how the deal will affect the movement of people, especially for firms with operations in the UK that have traditionally relied on free movement between the UK and EU.

Under the new arrangement, UK citizens no longer have the automatic right to live and work in EU member states, and vice versa. UK nationals will need a visa for stays longer than 90 days, in EU member states, in any 180-day period. European citizens will be allowed to stay in the UK for up to six consecutive months.

However, a new points-based immigration is being introduced for those planning to enter the UK to live and work, and additional work permits may be required depending on the work involved.

This could have a big impact on recruitment policies, especially for companies with an HQ in the UK that have employees that provide services throughout in the EU, Jason says. They may have to set up entities in the EU to hire employees and provide services.

Customs and classification

The TCA means the UK has effectively become a “third country” as far as the EU is concerned. There are significant changes to the way companies do cross-border trade, especially concerning customs requirements and the classification of goods.

This will have a big impact, for example, on companies with UK operations that move products and produce within the EU and elsewhere, such as food businesses, Jason says.

These companies are likely to face considerably more paperwork and conformity requirements such as certifications to be performed in the EU.

The European Commission website provides useful information on imports and exports, including customs and VAT rules. These rules differ depending on whether you do business with Great Britain (England, Scotland and Wales) or Northern Ireland. The Commission points out that companies in EU member states now need to file customs declarations when importing or exporting any goods to/from, or moving goods through, the UK (excluding Northern Ireland) and vice-versa.

Data protection

Personal data protection and GDPR (General Data Protection Regulation) and also pose challenges to businesses doing cross-border trade. The UK government has published guidance on using personal data for business purposes. This states GDPR has been retained in by the UK government, with technical amendments to ensure it can function in UK law, adding: “The UK remains committed to high data protection standards.”

Steffen says companies may need “a huge effort to revisit their supply chain” to ensure compliance.

Compliance

Independent accounting firms within Praxity Global Alliance are well placed to provide business advice to clients affected by Brexit, especially compliance issues.

Member firms worldwide are collaborating closely through the Praxity platform to share knowledge and expertise to help clients navigate the new arrangement.

When a company based in the EU or elsewhere wishes to export to England, or vice-versa, member firms in the relevant countries connect and collaborate to provide expertise on compliance, tax, regulations and other business hurdles.

Jason explains: “Plante Moran is working together with Praxity affiliates in the UK to help clients understand and navigate the post-Brexit arrangements.”

In the coming months, member firms will have a better idea of the needs of companies navigating the new rules and procedures.

Steffen concludes: “Let’s wait and see what happens…but we need to get back to normality and try to make the best of it.”

I originally wrote this article for Praxity Global Alliance, the world’s largest alliance of independent accounting and consulting firms. I have updated it for my website.