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Businesses warned over red-tape burden after Brexit transition ends

Businesses have been warned there will be no last-minute reprieve when the Brexit transition period ends on 31 December and to prepare now for the changes in trading with the EU that will soon come into force.

15th Jul 2020
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The UK left the EU on 31 January 2020, but much of EU law continues to apply in the UK during the “implementation” or “transition” period. This ends on 31 December 2020, at which point EU law will cease to apply in the UK except to the extent the UK and the EU agree.

The European Commission, the bloc’s executive, published a document outlining where businesses need to be aware that disruption is coming, regardless of ongoing negotiations.

A public information campaign has also been launched by the UK government, titled ‘The UK’s new start: let’s get going’, which sets out the actions companies must take by January 1, 2021.

The government said that some areas of UK-wide guidance published will not be applicable for trade between Northern Ireland and the EU, until negotiations have concluded with the EU. Initial guidance specific to Northern Ireland will be published in the coming weeks and will continue to be issued throughout the transition period.

Red tape increase

Businesses hoping for less red tape once Britain leaves the EU will be dismayed by the mounds of paperwork and compliance checks that must be approved before trading in the union can continue.

“Customs declarations are complicated” a 208-page document on importing and exporting for businesses published by the government states. 

It contains a large checklist for firms to prepare for doing business in the EU, and advises hiring an intermediary, such as a customs agent or a freight forwarder, to help navigate the new requirements. Firms wanting to tackle the burden alone can buy special software and obtain direct access to HMRC systems.

Other new requirements include applying for an Economic Operator's Registration and Identification Number, ensuring hauliers have the right driving licences and making sure VAT accounting processes are ready for EU imports.

“We expect further information and technical details to be released over the next couple of months but what is clear is that UK business should no longer be putting off decisions over their post-transition processes,” said Martin Meacock, director at logistics technology firm Descartes.

Import and export declarations will be required from January 1, 2021 and although importers will have up to six months to complete the declarations, experts said they should do so sooner rather than later to avoid backlogs and administrative burdens building up. 

“Excise goods or controlled goods will be excluded completely from deferred declarations,” said Meacock. “Companies need to account for VAT separately, probably using Postponed Accounting, and undertake some basic customs record keeping or reporting if they defer any declarations, but it is best practice to keep on top of the import declarations from 1 January rather than wait six months.”

Other changes include updates to company law, and may cause shareholders of certain UK companies whose central place of management is within the EU to lose their limited liability.  

The EU notice also clarifies that certain other aspects of EU law will no longer apply to UK companies, including EU rules on company filings and transparency, the regulation of takeovers, shareholder rights and engagement, and corporate governance. 

“However, at the point at which the UK ceases to be subject to EU law, these rules will be preserved in UK law, and the UK government has not indicated any particular intention to change them,” said Robert Boyle, lawyer at Macfarlanes.

Readiness concerns

 An Institute of Directors (IoD) survey of nearly 1,000 company directors polled in late June found only 24% considered themselves as ‘fully prepared’ for Brexit while 19% said they had started preparing but had more to do.

Given the magnitude of the ongoing coronavirus crisis, a larger proportion indicated greater difficulties. Nearly half said they were not able to prepare right now, with one in seven distracted by coronavirus and a third saying they needed the details of any changes to be clear before adjusting.

Directors in services felt especially unable to prepare at present, whether due to pressures of the pandemic or because they needed more clarity on changes.

The majority (69%) said that reaching a deal was important for their organisation, with 89% saying it was important for the economy as a whole as it recovers. Among the portion of directors who favoured being able to diverge from EU rules, most (71%) said that getting a deal was important to the economy.

“With so much going on, many directors feel that preparing for Brexit proper is like trying to hit a moving target,” said Jonathan Geldart, IoD director general. “Jumping immediately into whatever comes next would be a nightmare for many businesses.”

He said a commitment to some form of reciprocal phasing-in of changes is a long-standing ask from IoD members, and the benefits “would be significant”.

“At a time when government is rightly straining every sinew to help firms deal with widespread disruption, it would be counterproductive not to seek to minimise it at the end of the year,” Geldart said.

Unilateral actions such as staggering import controls would be a welcome step from government, he said, but by no means enough, and called on the UK and EU to commit to a reciprocal, phased implementation wherever possible, and for the UK government to provide greater clarity on its contingency plans in the event of a no-deal.

To minimise disruption in the context of coronavirus, the IoD also reiterated its call for financial support for small firms to access specialist help and advice on a range of Brexit impact areas, for instance in the form of tax credits or ‘Brexit vouchers’ to follow in the footsteps of other EU countries.

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