Brexit-proof your business
It seems likely that Britain’s exit from the EU will go ahead as planned on 29 March 2019, but many SME manufacturers are unsure how to prepare for what remains a very uncertain future – writes Caroline Milton*.
Technical information, issued by the Government on 4th December 2018 to help businesses in the sector prepare for a no-deal Brexit, has raised concerns that a ‘frictionless’ trade agreement may not be achieved. With or without a transitional agreement, based on this scenario, Brexit could bring significant disruption and place an additional administrative burden on businesses trading in the EU.
In the event of a no-deal Brexit, around 145,000 businesses will be required to submit customs declarations to HMRC for the first time. This could cause delays and businesses are being advised to prepare in advance as far as possible.
Specifically, the Government is recommending that manufacturers trading in the EU take three critical steps. Firstly, they should obtain an Economic Operator Registration Identification (EORI) number. Secondly, they should decide whether customs declarations will be made in-house, using specialist software, or by engaging a third-party customs broker or freight agent. Thirdly, they should check if additional information is likely to be required for the completion of safety and security declarations.
The long lead up to Brexit may have lulled some SME manufacturers into a false sense of security and they may be reluctant to plan ahead because of the high level of uncertainty about what the future holds. This complacency could be exposing them to greater Brexit risk. A study by the CBI, conducted earlier this year, revealed that 62 per cent of UK businesses have not carried out a Brexit risk assessment.
Now, with the Brexit deadline nearing and the Government’s current Brexit plan on uncertain ground, assessing and mitigating potential risks must be a top priority.
Preparing for Brexit, requires a considered and bespoke approach, which starts with a risk mapping exercise. Once the key risks have been identified and prioritised, forecasting models can be used to determine the impact each could have on business performance. To assist SME manufacturers in preparing for Brexit, Menzies LLP has developed a Brexit Barometer covering ten key areas of potential risk. Using this tool, businesses can develop a Brexit plan, which addresses the main risks they might face in the event of a no-deal Brexit.
For example, importers of goods from the EU could be hit by tariffs and customs delays. HMRC is also introducing a Customs Declaration Service, which they may be required to start using from 29 March 2019. As well as seeking an EORI number in advance and researching any tariffs that may apply to goods, depending on their commodity codes, businesses could mitigate risks further by considering alternative sourcing strategies. For example, partnering with other manufacturers could allow businesses to share the cost of stockholding and bonded warehousing could help delay VAT payments. If the business is making a lot of UK/EU cross-border movements, it may be worth investing in an overseas base in order to minimise these as far as possible.
Intellectual property (IP) rights represent another area of potential risk for manufacturers. While pan-European patent rights are unlikely to be affected by Brexit, other IP assets – such as trademarks and registered design rights, could be affected. Businesses may need to take action to avoid the danger of intangible assets being compromised and a review of its IP portfolio should be carried out.
Another important consideration is to understand future access to people. After Brexit, unrestricted access to low-skilled EU workers will cease and, in the short-term, manufacturers may find it difficult determining the right-to-work status of some employees. Low-skilled EU workers could become a more sought-after commodity, which could lead to shortages and drive up wage costs. To mitigate these risks, businesses should review their recruitment and retention strategies and source information about special visa schemes that they might be able to utilise, such as Exceptional Talent or Tech Nation Visas.
There are many other areas of potential risk to be assessed and by taking a careful and planned approach will ensure that SME manufacturers are ready, no matter what Brexit throws up.
*Caroline Milton is a partner and manufacturing sector specialist at accountancy firm, Menzies LLP www.menzies.co.uk