What to do now to prepare for the Brexit transition period ending

Whether or not your business is an active participant in trade between the UK and EU, your business is likely to be impacted by the end of the Brexit transition period.

As the UK and EU prepare for the end of the Brexit transition period, there are plenty of things businesses can do now to prepare.

While negotiations on a Free Trade Deal between the UK and the EU are ongoing, businesses need to consider the impact of no deal at the end of 2020. An eleventh hour extension of the transition period has been repeatedly ruled out by the UK, and is therefore seen as unlikely.

Whether your business is a direct participant in trade between the UK and EU, or not, there is likely to be some impact, whether that be in the macroeconomic context, supply chain disruption, availability of labour or finance.

Support from the UK Government

Above all else, the UK Government’s web page is the best place to find all of the latest information for businesses about how to prepare for the next phase in Brexit. The website is at gov.uk/transition^.

Working capital

One of the first things any business should do when facing a period of uncertainty, is to look at their working capital cycles and ratios. “Working capital is a bit like the fuel tank of a car,” says James Binns, Global Head of Working Capital, “if you don’t have the right size of fuel tank, you’re not going to go anywhere.”

There are three main components of working capital.

  1. Days sales outstanding – how long it takes your buyers to pay you.
  2. Days inventory outstanding – how long it takes to convert inventory into sales and the stock period for that inventory before you sell it.
  3. Days payable outstanding – the amount of credit your suppliers give you or how long they give you to pay.

The longer it takes your buyers to pay you or the longer you stock inventory; the more cash you’re going to need. And similarly on the days payable outstanding, if your suppliers need paying early because they themselves have working capital problems, you’re going to need more cash to do that as well.

Whether or not you are directly doing business between the UK and EU, you may be selling to someone who is, so your working capital may be affected by theirs.

The end of the transition period may mean we start to see border delays occurring. This could bring a further significant challenge to working capital. Businesses need to understand the risks in terms of delays in shipments, and therefore delays in payments.

Border changes

It very much remains to be seen what sort of delays logistics businesses might face at the borders, particularly of course in Calais and Dover, though other major hubs across the country could be impacted.

The UK Government has already announced that lorries entering Kent and bound for the ferry and Channel Tunnel terminals will need a new KAP permit – the Kent Access Permit^. The KAP will be required for any lorry heading to the Kent ports, and ANPR cameras (Automatic Number Plate Recognition) will be used to enforce the new rules. This is to help avoid roads around Kent becoming gridlocked with traffic if border delays do become a reality.

How to prepare for changes at the border

Delays to importing means you may have to hold higher stock levels. In the build up to a previous Brexit deadline last year the CBI reported^ record levels of stockpiling in UK warehouses.

This time around, such stockpiling may be difficult as the transition period ends on December 31st, just after Christmas.

Warehouse space is likely to be more difficult to come by, and the situation is further complicated by an uncertain Christmas trading period for retailers contending with the Covid-19 pandemic. Planning ahead and ordering ahead will be crucial.

There is financial support you can consider to assist if you decide that stockpiling might be necessary for your business, such as invoice finance, trade finance and supply chain finance.

The just-in-time supply chain that many businesses operate to is likely to remain a key inventory strategy in both the EU and the UK, though it would be prudent to consider other options and to prepare for some form of disruption, even if this is only temporary.

Businesses and supply chains have repeatedly shown how quickly they can adapt and evolve – not least during the Coronavirus pandemic. Brexit is no different, in fact somewhat simpler given it presents a fixed point in time.

Importers and exporters will need to make declarations

It’s really important that you act now – a free trade agreement will not remove any of these requirements. Unless you have all the correct processes, contracts and agreements in place you will not be able to trade with the EU from 1 January 2021.

You will need to decide how you’ll make customs declarations. You can either get someone to do this for you^, this is what most traders do, or do it yourself^. Your ability to make customs declarations yourself will depend on the resources at your disposal, but it’s important to not underestimate how much time and effort it will be to do it yourself.

Exporters who are familiar with the process for exporting to countries outside of the EU, including Switzerland, Norway and Iceland, will be well aware of the process for declaring goods. Find out more info at www.gov.uk/prepare-to-export-from-great-britain-from-january-2021^

If you import goods from the EU that are on the controlled goods list^ (such as animal products, alcohol or tobacco, or firearms), you will have to make declarations from 1 January 2021. If you import goods from the EU into Great Britain that are not on the controlled goods list, and you have a good compliance record, you have the option to defer declarations for up to 6 months^.

European businesses should ensure they are familiar with the particular requirements for the country they are based in.

The other essential item for your list is to ensure you have a EORI number. This registration allows you to export – at present to non-EU countries, but after the end of the transition, also to the EU.

All businesses who are VAT registered traders were auto-enrolled this time last year, so most should already have a EORI number. However, if you don’t you can register for your EORI number here.

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Access to talent

With the very likely end of free movement between the UK and EU nations, the UK will be moving to a points-based immigration system. This will prioritise workers regardless of where in the world they are from, with the exception of Irish citizens, who will continue to benefit from the Common Travel Area between the UK and the Republic of Ireland – an arrangement that pre-dates the EU.

Workers coming to the UK will need a visa, be able to speak English and be coming to a job with a minimum salary of £25,600. Businesses can sponsor workers (in much the same way as they might do for non-EU citizens today), and if you expect to need to sponsor skilled workers in 2021, you should register to do so right away here^.

Non-skilled workers are unlikely to be offered work visas into the UK in 2021, according to current government policy, but again, the sad fact of rising unemployment due to Covid-19 means that businesses should not face a shortage of people in the short-term at least.

Read more about the new points-based system here^.

Workers from the European Economic Area and Switzerland who are resident in the UK by 31 December 2020 will have until the end of June 2021 to apply for settled status under the EU Settlement Scheme^.

The cross-border flows of data

The General Data Protection Regulations, that we all became so familiar with in 2018, still apply in the UK and EU after transition, as they have been written into UK law as the Data Protection Act 2018.

However, there could be implications for the flows of data between EU nations and the UK. So it is important to identify where you receive data into the UK from the EEA or vice versa. Consider which GDPR safeguards will allow this to continue post-transition.

If you operate across Europe, review your structure, processing operations and data flows to assess how Brexit will affect the data protection regimes that apply to you, and identify whether any details in your privacy information or internal documentation will need to be updated.

Data flowing from the UK to the EU will not be affected, but data coming the other way could be. The EU is undertaking a data adequacy assessment of the UK, but if this is not completed before the end of the transition, businesses could need to put in place standard contractual clauses or to seek alternative methods of transferring data.

Corporates with bases in the UK and EU may find that existing EEA-approved binding corporate rules are sufficient for data transfers. But the most important thing is to map all of the data flows and prioritise large volumes of data coming from the EU to the UK.

The Information Commissioners Office has a wealth of information^ on this topic which is regularly updated.

What next?

The deadline for the transition period to end is 31 December 2020, and the likelihood of an extension is very low.

Time is running short now, with a deal, if done, likely to be agreed in the next few weeks.

As such our list of key dates grows ever-shorter:

  • 10-11 December - European Council Summit
  • 31 December - Transition period ends
  • 31 December - End of EU Multilateral Financial Framework
  • 1 January 2021 - New EU-UK relationships begins

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