Preparing to leave the EU

History awaits Britain and her businesses on the 4th January 2021. It is uncertain however, in light of COVID-19 and the prospect of a potential ‘rolling’ national lockdown, just how many Britons will be heading back to work on the first Monday morning of the new year.

What is certain however, is that it will be a Monday morning like no other.

The date represents the first day of UK businesses operating outside of the European Union.

As a result of the Brexit referendum on 23rd June 2016, fully four and half years after the British public voted to leave the EU, and after two successive Prime Ministers could not establish satisfactory terms for a trade deal, Britain will gather herself up and go back to work, taking her first steps into a new economy. For British businesses, in light of these incredible circumstances, to be prepared, as Cervantes would teach us, is half the victory.

A strong cash position mitigates risk

In preparation for Q1 2021, businesses should and must be intensively focused on their cash position.

This is no time to be without working capital.

To maintain the strongest possible cash position mitigates the risk of disruption in your supply chain. Risks to UK supply chains could range from new tariffs on new borders impacting product flow, to having to create entirely novel sourcing models and build new relationships.

Those new relationships are not only time-consuming to build and manage, but they can also be expensive to service and maintain.

Payment in advance is often the requirement in a fledgling supplier relationship, especially in uncertain times. So right now, cash is the very last thing a UK business should choose to part with.

Import and export – the challenge

The implementation of the Single Market in 1993 gave a huge boost to trade from the EU into the UK market. Imports of goods and services into the UK from the EU now account for £318 bn (2016), or 54% of all imports of goods and services.

The increasing influence of the EU as a player in the world of global commerce has also simplified exporting from the UK to non-EU states and nations. Exports of goods and services from the UK to non-EU countries totalled £311 billion in 2016, compared with £110 billion in 1999*.

But from 1st January 2021, the UK will operate a full, external border with the EU.

This means that there will be controls placed on the movement of goods between Great Britain and the EU.

From that date, businesses will need to submit declarations when importing and exporting goods that are categorised as ‘controlled’. Import processes for non-controlled goods will be introduced in 3 stages, in January, April and July.

Importers should be ready for extra costs and administration of VAT. At the end of the transition period, sales of goods between the UK and the EU will become imports and exports for VAT purposes. As a result, VAT won’t need to be paid on imports into the UK, but it will need to be accounted for.

Export rules will also change, and for some (though not all) EU countries, this will mean accounting for and paying VAT on goods exported from the UK.

How will this impact your cash flow? How will it affect your current systems and processes? And what are the additional administration costs?

The true cost of change

The true cost of Brexit to importers and exporters will not be known for some time.

With COVID-19 also having a huge impact on economies and businesses the world over, only time will allow us to reach and then reflect on the new equilibrium, when we establish a consistent pattern and cadence in terms of trade.

Consider the pressure on UK borders in a single day, post-Brexit.

It is well-documented that customs declarations could increase by 700% – from 50 million today to 400 million*. The impact on planning, fulfilment and margins is not only real, it’s also staggering. Stock management and warehousing will both be under pressure from the outset. Longer lead times have a detrimental impact on both service levels and margins (based on sale price), especially on perishable goods with a short shelf life.

The undoubted delays pose a fundamental risk to UK businesses.

Government support

The level of government appetite to fill the funding gaps posed for UK businesses by Brexit in next year is unknown. CBILS, CLBILS, BBLS and The Future Fund were introduced to support businesses through COVID-19 – but at present, there is no sign of any Brexit-BILS.

Perhaps the UK government is able to hide the issue whilst people continue to be distracted by the global pandemic? Or perhaps they believe their own rhetoric that Brexit is purely good news for international trade?

One thing is certain – if it takes longer to deliver and consequently longer to fulfil an order, it will surely take longer for that order to be paid. The knock-on effect in every instance will be a reduction in working capital – and in the worst cases, a shortage of cash for the supplier.