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Brexit Latest: Is No-Deal a Big Deal?

Brexit Latest: Is No-Deal a Big Deal?

With the publication of the UK government technical guidance notes for the possibility of a no-deal Brexit, following on similar guidance from the EU, it feels more than ever that the possibility of such a scenario has to be taken seriously.

The UK government is making reassuring noises to the effect that if there is a no-deal Brexit on 29 March 2019 they will aim to keep business flowing across borders while some sort of deal is agreed, or at least temporary practical arrangements are put in place. But it’s not all within the UK government’s power to deliver that. They have acknowledged that the UK will be reliant on the EU agreeing to help mitigate the effects of a no-deal Brexit, which for political reasons cannot be taken as a given, not least because the EU allowing a continuance of “open borders” with the UK is likely to put it in breach of trade agreements it already has in place with other countries.

So what should businesses be doing in preparation?

Crossing the borders

Importers and exporters will be well familiar by now with the issues that may be caused by a no-deal Brexit. And it’s unlikely that the government guidance will tell them much, if anything, that’s new.  What is clear is that dealing with customs declarations, engaging customs agents, purchasing software, dealing with new tariffs or whatever else is required will take time and money. Businesses that export to/import from outside the EU are already likely to have experience of the sort of bureaucracy (and costs) involved. Those importing/exporting companies that currently only deal with the EU should as a precaution at the very least familiarise themselves with what steps they may need to take in terms of new customs processes for fear of being left stranded if there is indeed a no-deal Brexit. 

Those businesses should also be auditing major operators in their supply chain to understand the extent to which they are reliant on goods being exported/imported to or from the EU. 

Where your business is reliant on EU imports, you will want to establish if there are any domestic suppliers that could support your business, even in the short term. If there is, you should consider engaging with those alternative suppliers now by way of contingency planning.

What about services?

The financial services sector is very well advanced in terms of planning, and most of the larger players have had to work on the assumption that passporting rights (the right to sell products and services in the rest of the EU) will disappear. Many have set up subsidiaries in the EU27 and will continue trading in Europe through a group company.

But what of other services? They account for a huge percentage of the UK economy. Are UK firms in any way restricted from continuing to provide those services inside the EU27 post Brexit? Well the short answer is that it depends on what services you provide and where you provide them from and to.  You may need to consider establishing an office/personnel in one of the EU27 countries to allow you to continue without restriction.

VAT

An exit from the EU will also see changes in how VAT is dealt with on imports and exports. We have looked at this issue in more detail here - click here to read ‘No-Deal Brexit - VAT Do You Do Next’?.

Contract Risk

What about contracts that will run past 29 March 2019? Is your business likely to be put in breach (and risk a claim for damages) or are any of your main suppliers likely to let you down if you or they can’t deliver as a result of disruption caused by a no-deal Brexit? If so, what can you do about it?  Well, there may be mitigating steps you can take now to help manage a no-deal Brexit breach or liability. As for any new contracts currently being negotiated, you really should test the terms against a no-deal Brexit and review the options to include some contractual protections.

What about people?

While the UK government has given reassurances that they will move quickly to recognise the rights of EU/EEA nationals living and working in the UK, there may be many EU/EEA nationals here anxious about the future and considering leaving.  We have seen some emigration already, for both social and economic reasons. Businesses with EU/EEA nationals in their workforce (or related to their British staff) will no doubt want to reassure them as best they can that they have a secure future here. So for example, we have seen some organisations take practical steps now to provide legal and financial support to assist with various types of residence applications by their EU/EEA employees where that has been appropriate. We have also seen an increase in queries on how EU/EEA nationals are able to obtain British nationality and thereby become dual nationals.

The negotiations are going to run for some time yet, and even if a deal is reached between the UK government and the EU in October/November it will still require to be ratified by Westminster and the EU parliament. So the current uncertainty is likely to be with us for some time yet. Calmer heads will say that a deal will be done and that would certainly be a relief to much of the business community.

However, just as most businesses these days require to have business continuity plans and IT disaster recovery plans, any prudent business would be well advised at the very least to understand how a no-deal Brexit could affect it and seek to take some reasonable and practical steps to mitigate the possible impact. 

Ian Wattie
Consultant

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