The recent correspondence issued by HMRC to all UK businesses trading in the EU has prompted many manufacturers to turn their thoughts back to Brexit preparations. 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 states that thousands of UK businesses may need to set up an EU presence if they want to continue delivering goods to European markets after Brexit.
From 1st January 2021, a new Border Operating Model will come into force. From this date, in the event of a ‘no deal’, the UK will operate a full external border and the movement of goods between the UK and EU will be subject to new controls. These will include the need for businesses importing standard goods to meet basic customs requirements, such as completion of formal import declarations and consider how VAT on imported goods is accounted for and paid. As a result of these changes, manufacturers that fail to plan ahead could risk damaging established supplier and customer relationships. It’s worth bearing in mind that putting in place a plan for international trading from 2021 will take time, so businesses need to move quickly to decide on their own strategy.
While Brexit is likely to affect many different areas of UK manufacturing, industries such as aerospace and automotive, which import parts from the EU, could be at particular risk. Organisations importing products for processing and repair before shipping them for sale in the EU could also find that they need to adjust their operational footprint. It’s important to be aware that local regulations can vary significantly between member states. As such, deciding which jurisdiction is the best fit, and implementing a suitable supply chain takes care, and manufacturers should seek support from advisers with international reach.
Expected changes to the treatment of VAT and customs duties from the start of next year should also be considered now. This should involve reviewing supply chains in order to identify where tariffs, in particular import VAT and customs duties, could apply. Customer and supplier contracts should be closely assessed to determine which party is the ‘importer of record’. The relevant Economic Operator Registration and Identification (EORI) numbers should be secured if businesses haven’t already done so and they should also consider whether obtaining VAT registrations in other EU Member States might be of benefit. 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.
For UK manufacturers that currently act as importer of record, it may be necessary to establish an EU presence, allowing goods to be imported directly into the EU. It’s important to bear in mind that different member states will have differing 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. Seeking the right expert advice is essential to protect continuity and minimise the risk of supply chain disruption.
Where additional costs are being incurred, manufacturers should assess how this might impact the financial viability of their trading relationships. 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. Businesses should also take advantage of options to defer payments of duty and tax where they can. This will help them to spread the cost of compliance when paying customs charges including import VAT, customs duty and excise duty.
If manufacturers are looking to extend their footprint into the EU, they should also take into account factors such as corporate and employment taxes, that may arise from becoming established and when meeting future staffing needs. As HMRC is still making grants available for IT and training relating to the new import and export declarations processes, it’s also important to consult HMRC guidance carefully. Manufacturers may 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.
With the end of the transition period nearing, manufacturers must accelerate their Brexit planning now. While some will have more to do than others, all businesses should consider the impact of Brexit on their supply chains and their financial viability – this will ensure they are ready to maintain profitable operations when the time comes.
