LawBrief solicitor Raza Naqvi has been providing his expert insight into the latest developments on Brexit. This week we are back with Part 2 of this 4 part series – ‘No Deal’ game plan for SMEs.
As another week passes, the terms of Brexit still lacks clarity. Yesterday’s summit in Salzburg shows that the Irish border question is still a significant sticking point. This has led many commentators to infer that the ‘No Deal’ Brexit scenario that businesses most fear may still become a reality.
The UK Government published technical notes on 23 August and 13 September outlining how businesses can prepare for a “no-deal” scenario for future trade relations between the UK and EU. While the UK Government is aiming for a comprehensive free trade agreement with the EU in the future, the publication of these notes is a preemptive step to avoid a cliff-edge moment on 30 March 2019 and should form the basis of contingency legal planning so businesses are best prepared to continue trading from 30 March 2019.
This blog focuses on certain changes to your customs systems, processes and procedures if you are exporting to or importing goods between the EU and the UK.
No deal scenario – UK is a “third country”
In short, without a deal in place, the UK will be considered a “third country”, that is, any country which is outside the EU (and therefore not part of the Single Market– which allows free movement of goods between EU Member States with limited customs formalities except for certain goods). Current custom formalities for trade with any country outside the EU will need to be followed.
This will impact all businesses involved in direct and indirect exporting to and importing from the EU. Goods imported from outside the EU usually qualify for free circulation once all import formalities have been completed and import duty and any other customs charges paid. Similarly, an EU based business will need to treat UK sourced imports as trade with a third country and follow EU processes for importing from or exporting to countries outside the EU – more information for EU based businesses is available on the EU’s own trade guidance website.
Contingency planning for SMEs
1. Supply chain mapping:
- Dig into the details of your current trade relationship with EU based businesses and individuals. Are you temporarily exporting goods to the EU to be processed and then exported outside the EU? Alternatively, are you an EU business exporting to the UK for goods to be processed and imported back to the EU? Are you temporarily exporting goods from the UK to the EU, or vice versa?
- Depending on the nature of the trade activity, an analysis will need to be conducted as to what custom processes will apply as if the UK was not part of the EU. In a ‘no deal’ scenario there may be changes to duty relief schemes that you currently take advantage of (for example, temporary admission, customs warehousing, returned goods relief).
- These supply chains should be documented, classified and receive preliminary contingency planning. This should include how you currently treat VAT (or equivalent) charged to your customers in the EU (or in the UK if you are a EU business).
- If you decide to create an establishment in the UK or the EU, engage legal counsel to establish the appropriate legal structure for you and any other requirements that may apply to your business.
2. Engage with your EU/UK suppliers, customers, carriers and relevant authorities:
- In a “no deal” scenario, your counterparty will be similarly impacted as you are. There is a decision to be made as to which suppliers and customers to contact. In particular, the relevant Incoterms between you and your counterparty (internationally recognised trading terms) will be relevant to determine who will take responsibility for custom clearance.
- In the UK there are specific government agencies (e.g. Department for Environment, Food and Rural Affairs and Agriculture) which should be able to provide additional guidance on any licenses required for export of your goods to the EU. Agriculture (live animals, meat, fruit, vegetables or plants), chemicals, medical devices, controlled substances, strategic military and dual-use goods may require authorisation from specific UK governmental agencies. Furthermore, you should contact your customer and the equivalent authority of the country to which you export in the EU for any other certification necessary.
- It is also a good idea to contact your carrier or transporter to establish if they have Brexit contingency planning in mind and what systems they will have in place, for example, in relation to safety and security declarations.
3. New terminology, documents and systems familiarity:
- There are very limited customs formalities currently relating to UK-EU trade. In a “no-deal” scenario this will change. The UK has an easy to use customs system, but for many SMEs the initial use of these will be challenging as it is reliant on electronic self-declaration. Consider engaging with customs approved third parties that you can outsource custom clearance management to who can make the process simpler for you in the future.
- Export and Import Declarations: You will need to have a UK Economic Operator Registration and Identification (EORI) number and become familiar with the Customs Handling of Import and Export Freight (CHIEF system). This is HMRC’s central gateway to submit a number of export related documentation (particularly through the National Export System) and import related documentation. There is different information which needs to be provided for direct export and indirect export (the latter requiring an Export Accompanying Document (EAD)). Traders must also classify their goods as part of the declaration, including a commodity code and a Customs Procedure Code (CPC).
- For example, if you currently export goods out of the EU by post, you must complete and attach a CN22 customs declaration or CN23 for goods of higher value. Additionally, if you want to temporarily export goods to the EU this will also change.
- Become familiar with the terminology and train your employees to engage with the relevant customs systems. Also, consider if it is practical to seek voluntary accreditation now to “fast-track” your shipments in the future. For example, AEO status (which is non-mandatory) is an internationally recognised quality mark indicating that your role in the international supply chain is secure and that your customs controls and procedures are efficient and compliant.
Stayed tuned next week for part 3 of our Brexit Impact series.
LawBite is helping small and medium-sized businesses understand their risks and develop strategies for Brexit. For further legal advice, you can contact the author of this article expert LawBrief Raza Naqvi, or enter an enquiry for a free 15-minute legal consultation. Alternatively please do call our friendly Client Care Team today on 020 7148 1066.