A month has now passed since the Brexit agreement was signed. In that month, there has been a plethora of chatter, from freight tariffs, to supermarket shelves being left empty, to brand new travel cards for your pets.
With new policies regarding trade, transport and travel still being debated through parliament, it can be difficult to keep up with how to prepare your business for Brexit if you’re a business owner – especially if your business is small or new.
In this blog we’ll cut through the noise to round up the most important things that UK businesses need to know about Brexit.
Note: Information in this blog was correct at the time of writing.
How will Brexit affect imports and exports?
The good news is that trade from the UK to the EU is remaining tariff free. This came as a relief to businesses who presumed they would need to pay tariffs on both imported and exported goods.
The bad news however is that a customs and regulatory border – the same as with the UK and the USA, for example – is now in place between the EU and UK.
Having such a border in place means the following for UK businesses importing and exporting after Brexit:
- Your business is now required to apply for an EORI number. An EORI number allows your business to continue moving goods between Great Britain (England, Scotland and Wales) as well as to the Isle of Man and other countries abroad.
- Export declarations and Exit Safety and Security declarations are now required on all goods exiting the UK bound for EU countries. If you are a haulier, this is where port and customs hold ups could occur if your drivers are not issued with the correct paperwork.
- The rules around the collection of VAT have changed: VAT is now collected at the point of sale, as opposed to the point of importation. This means that UK supply VAT, not import VAT, is due on appropriate consignments (those worth up to £135). In response to this, the UK government has introduced ‘Postponed VAT Accounting’ for import VAT due on goods imported into the UK.
- Purchases made online from suppliers in the EU will be subject to customs duties. For deliveries worth more than £390, handling fees and VAT (for packages more than £135) could apply and just like any customs process – packages will be held until duties and fees are paid.
What is an Authorised Economic Operator?
Another term businesses may hear being bounced around Parliament, and attached to the documentation regarding importing and exporting after Brexit is the term “Authorised Economic Operator” (AEO).
An Authorised Economic Operator is a status that UK businesses can attain that recognises them as a trusted business and allows for the speeding up of customs processes.
There are two certificates that businesses can look to attain. They are:
- Customs simplification: A status that allows businesses to clear goods faster at customs checks and borders, negating in lengthy interventions like paperwork checks and clearances.
- Operator Security and Safety: A status that recognises the business as a trusted business, lowering its “risk” level. This reduces the number of checks required at ports and custom points, and also places the businesses goods at a priority status – potentially speeding them through customs processes.
Businesses can hold either one, or both.
Once awarded, the status is not only recognised by the EU, but also by China, Japan and the USA – allowing for expedited customs processes across all borders.
HMRC is responsible for the awarding of an AEO status, which means that in conjunction with other HMRC procedures there are requirements which must be met before a business can begin the application process. These are:
- Tax and Customs Compliance: This area analyses how well the business has handled customs and tax paperwork, repayments and dealings across a period of the past three years. How the business dealt with any errors will also be investigated as part of this process.
- Customs Record Keeping: HMRC will expect to see full audit trails for logistics, your business’s process for its flow of goods, and coherent commercial record keeping in line with HMRC rules and regulations in this sector.
- Solvency: The businesses assets must be positive, and HMRC will require copies of your management accounts and projections. You will be required to provide a letter of conformity from your small business accountant or bank.
- Competence and Qualifications: You will be required to provide evidence that displays your competency in relevant customs matters across a period of the last three years. If your business is younger than three years old, competent paperwork that spans the length of time it has been trading will suffice. You must also identify a person in your business whose role involves handling customs requirements – this does not have to be their only role, however.
- Risk Procedures: If applying for the Safety and Security certification, you’ll need to display your risk management procedures to HMRC, for example within your supply chain. You will also need to show that your staff are fully trained and also know how to negate risks.
It should be noted that AEO status is so far typically awarded to larger businesses with the resources available to dedicate to the various aspects that HMRC requires. Whilst this shouldn’t dissuade small businesses from applying, a smaller business may be better suited to using an intermediary such as a broker or customs agent.
How could Brexit affect my employees?
One of the predominant Brexit related worries is that of hiring and recruiting staff living, or working, in different EU countries. Predominantly construction, healthcare, hospitality, food production and retail are most affected by these changes.
Brexit rule changes regarding a points based immigration system – ala Australia – could mostly affect employees who are:
- Not naturalised UK citizens, i.e, they reside in a different EU country and only have permission to work in the UK
- Employees who are UK nationals, but have either a spouse, partner, or family members who are not regarded as UK nationals
- Any students working for your business on work placements from the EU, like an apprenticeship scheme
The best way to identify your employees likely to be affected by these changes is to speak to them.
If an employee who is in one of the groups listed above wants to remain working for your business, they must apply to live in the UK under the UK Government’s new EU settlement scheme. This applies to employees from countries:
- Any EU country (except Ireland)
The EU settlement scheme allows those nationals to apply for “settled status” both for themselves and their families. If the application is successful, they can remain in the UK for as long as they wish – both to live and work.
It is worth noting that Irish citizens who possess indefinite leave to remain in the UK do not need to apply, but their family members still will – especially if they are from outside the UK and Ireland and do not have a national status.
The EU Settlement Scheme must be applied to before 30th of June 2021 and successful applicants will be awarded either:
- “Settled” Status: If they have lived continuously in the UK for five years or more. This status then grants them the power to stay indefinitely in the UK.
- “Pre settled” Status: This status is applied to those who have not yet lived in the UK for five years. Once they have reached five continuous years, they can reapply for settled status.
The application is free, and once an employee has achieved settled status they can apply for citizenship.
However, if you wish to employ an international worker – that is someone who lives overseas or is a student coming to the end of a placement – your business will need a sponsor license in order to be able to pay the employee a wage.
Due to the new status changes, employers must ask whether the potential employee has settled or pre-settled status, or a VISA. This affects businesses who can no longer rely on recruiting EU nationals dependent on their statuses.
A sponsor license however allows businesses to recruit EU nationals and puts lesser regard on their status. The sponsorship lasts for four years before renewal, and to apply The Home office will need evidence of:
- Correct HR procedures in place that are responsible for both updating and maintaining the sponsor license
- Information about how your business is organised, and why you need to employ foreign workers
- Proof of recent annual accounts and the licenses your business needs to operate
When a business is awarded its sponsor license, you must apply then for an allocation of Certificate of Sponsorship (CoS). You must attain a certificate for each worker you wish to employ.
Once the certificate is awarded, you must keep your records up to date, pay your employee correctly, and report any changes to their job role, duties, income or unapproved absences to the Home Office, else you could risk civil and criminal proceedings.
How could Brexit affect a businesses cash flow?
Small businesses are most at risk of seeing the turbulence of Brexit affect their cash flow. On average, 31% of UK small business owners feel that Brexit will have a negative impact on their cash flow.
This is where working with a small business accountant, like us at iFinance Department can help. Our advice regarding cash flow for small businesses worried about detrimental impacts remains the same as we would give any small business owner.
- Make your processes visible: What we mean by this is that invoices and receipts can go missing far too easily, which can skew accounting and bookkeeping records. The best way to negate this is to set a process early where all financial documentation, offers and even promotions get stored and recorded instantly. This can be a manual process, or it can be done using financial accounting software.
- Vary your tools: If your accounting and bookkeeping is mostly done manually through Excel spreadsheets, it can be all too easy to make human errors, or get confused with exactly which document you should be looking at. Introducing automated accounting software can help reduce this risk, as can reaching out to an accountant to split the workload.
- Develop a strategy: Strategies can minimise the endless lurching from in the red to in the black. Safeguarding your business’s cash flow against turbulence through Brexit VAT tariffs, fees and customs charges can make all the difference. Speak to an accountant – they can help.
How an Accountant can help with Brexit
Small businesses who are struggling to grasp the changes of Brexit, or who are worried about financial implications on their business in the event of charges and VAT changes, can receive help from an accountant to navigate the turbulence.
Accountants can help with preparing your business’s tax and VAT changes, import and export fee paperwork and of course lend a hand with postponed VAT accounting. In addition, an accountant can help with your business strategy and cash flow management.
If you need advice, guidance or a helping hand with any of the changing business legislation regarding Brexit, get in touch with us at iFinance Department today. We’re fully experienced, virtual accountants who can work alongside your business to ensure it’s safeguarded and Brexit-ready.