No Deal Brexit – turn your worst-case scenarios around and plan for growth
Written by Partners, Chris Danes, Chris Blundell and Indirect Tax Director, John Rossiter
After the dramatic events of the week commencing 2 September, especially the vote on Tuesday 3 September, the uncertainty around how and when the UK will leave the EU has increased - will it be with or without a deal, on 31 October 2019, 31 January 2020 or another date?
Unpredictable as it is, the odds of a no deal Brexit later this year are currently about 25% [per oddschecker.com]. It should be noted this was almost 50% after the Parliament suspension was confirmed on Wednesday 28 August.
Hence it would be wise to consider the no-deal implications for your business, and how you can turn them to your advantage. Research completed by the British Chamber of Commerce shows that 41% of UK businesses have done no Brexit risk assessment, hence we recommend that any defensive measures are carefully considered at the earliest opportunity, such as…
The main concerns for businesses either exporting goods from the UK to the EU, or importing goods from the EU into the UK, are possible border delays impacting supply chains, and the potential for double duty costs becoming embedded in transaction prices which may negatively impact margins. Even businesses that are not involved directly in importing or exporting goods can be affected if upstream or downstream suppliers do rely on cross border movement of goods. It is critical to understand your supply chains to assess any potential risk and take action to mitigate those risks.
The main concerns for businesses employing EU residents in the UK is keeping current talent and access to talent in the future. Those businesses requiring easy and flexible access to talent post Brexit are considering the cost-benefit analysis for setting up an office in mainland Europe, so the business has the flexibility for current staff and new hires, so they can work from the UK office or a mainland Europe office, as required. At the same time, workforce restructuring can take place to ensure businesses are fit for 2020 and beyond. Where the new office is located is the key question and the timeframe to get set up is vital given the 31 October date looms…
As well there’s the very real risk of double social security costs without any “double tax treaty” offset for those companies with assignees in EU countries. This will particularly affect companies with assignees to countries with which we don’t have any historic social security treaty (for example: Romania, Poland and the Czech Republic). Even for EU states with which we do have historic social security agreements, companies with assignees to such countries will face having to pay the more expensive local social security (for example: France, Italy and Germany) rather than the better value UK NIC. Both these issues will come into play immediately on 1 November with a no deal Brexit. You’ll need to budget for these increased social security costs and in some case consider bringing forward planned secondments of staff, so they commence before 31 October (For example: to Switzerland).
The main concern for groups where there is a UK holding company with numerous subsidiaries in the EU is whether an additional layer of taxation will apply post Brexit once the implementation of the EU’s Parent-Subsidiary Directive in all EU countries, no longer helps reduce dividend withholding taxes from an EU subsidiary to the UK parent company. This can also lead to an additional compliance burden to ensure treaty benefits are available, otherwise scary domestic dividend withholding taxes in the region of 25% could apply. Minor group restructuring projects may be advisable, as are pre-Brexit dividends to take advantage of the current rules which at least apply until 31 October.
The main concerns from a VAT perspective are the process and systems changes needed to allow businesses to deal with VAT appropriately after Brexit. The VAT treatment that applies with respect to certain transactions will change, and systems may need to be configured to deal with these changes. In addition, several processes that are driven by the UK currently being in the EU will also change, and UK business will need to adopt processes required by non-EU business. Matters such as MOSS registration, Distance sales, EU VAT refunds, and VAT or fiscal representation will all need to be considered by UK businesses that are trading in the EU.
Numerous other commercial considerations are thrown up by Brexit, though above are the main ways that we are supporting our clients through these uncertain times - when the only certainty, is the level of uncertainty.
Contact us to turn Brexit to your advantage
To discuss how to turn Brexit and the above defensive measures into a strategic expansion for your business, please contact one of our offices today or alternatively, please send us an online enquiry.