The uncertainty around Brexit and its effect on UK businesses is much cause for concern. The recent standoff between the UK and the EU27 at the Salzburg Brexit Summit provides little confidence that there will be a Brexit deal. The current proposal of a two-year transition period is helpful in maintaining the status quo but will essentially extend this period of uncertainty further.
Businesses must be prepared for the possibility of the UK leaving the EU on 29 March 2019 without any deal. While it’s not possible to plan ahead with certainty, anticipating and preparing for worst-case scenarios could help your business better weather the Brexit storm.
Here are 5 essential tips that can help you ensure your business is Brexit-proof!
1. Minimise the impact of potential loss of zero-tariff trading
Identify the strengths and areas of exposure so you can react quickly as the Brexit outcome develops. In a hard Brexit scenario, net importers are likely to experience additional costs as a result of increased import tariffs and potential VAT payable on customs duties. Businesses could also be hit by customs delays and increased administrative burdens. While VAT should be recoverable by VAT- registered businesses, any additional tax could create a cash-flow bottleneck. For exporters, tariffs, customs duties and VAT could be applied, making exports more expensive and therefore less competitive compared with continental European businesses.
2. Review your entire supply chain to identify where additional costs might be incurred
If your business imports goods from outside the EU and then sells to EU customers from the UK, consider setting up an EU-based distribution hub. This will help prevent your goods from incurring double import and export charges to and from the UK. If your business provides goods and services in other EU countries, consider seeking advice on whether you will be required to separately register for VAT in those countries post Brexit. You should also register in good time before 29 March 2019.
3. The benefits of hedging
Many businesses have already been affected by the declining value of the pound. While this is great for exporters, it results in increased costs for importers. As Brexit negotiations continue, the UK may experience extreme exchange rate fluctuations. Businesses should consider mitigating associated risks. A currency hedge might address that risk but can be seen to be too complex. A simpler solution might be to open a foreign currency bank account to mitigate exchange rate risk.
4. Negotiate flexible contracts
If you’re thinking about signing or renewing contracts with customers based in continental Europe which are likely to extend beyond March 2019, you should consider building in come flexibility, if possible. For example, fixed price contracts could result in losses if currency movements shift in the wrong direction or if tariffs and customs duties are applied. Consider whether your contract needs to be settled shortly after March 2019 as there may be delays as products move across borders.
The risks of withholding taxes post Brexit could be mitigated with amending contracts to include “grossing-up” clauses. Amending contracts could be a costly and time-consuming process so consider focussing on priority contracts. Consider perhaps at this stage carrying out a review of your key contacts to identity where main areas of exposure lie. This will allow you to move quickly when the time comes.
5. Immigration and mobility of staff
One of the benefits of EU membership is that EU citizens can live and work in any EU country. These rights will fall away after Brexit. Consider potential changes to the immigration rights of any EU nationals working in your business in the UK (or if you have an EU business, consider the immigration status of any UK nationals working in continental Europe). Consider the additional costs and timing involved in having to obtain visas or to make other registrations and applications.
Conclusion: In the prevailing uncertainty it’s important to begin planning early and discuss potential changes now. By planning for the worst and hoping for the best, organisations can help to keep operations running smoothly even in the event of a hard Brexit.
About the Author: Per Frennbro is the CEO of FRENNS, which offers high speed, low cost invoice financing for small businesses. As a serial entrepreneur, Per focuses on helping both small and medium sized businesses take control of their cash flow. Visit https://www.frenns.com and see how you can turn your invoices into working capital to help your business prosper.