What if there is a hard Brexit?

Although we strive to be non-political in this blog, it would seem that there is an increasing likelihood that when we leave the EU March next year the present free movement of goods will no longer apply. And so, putting aside our reaction to this possibility, what should we be doing to prepare for this so-called “Hard Brexit”?

A fair proportion of the raw materials used in our manufacturing processes and the food we eat come from EU suppliers. It is unrealistic to expect UK businesses to increase stocks in anticipation of disrupted supply lines and increased prices after Brexit. In the case of perishable foodstuffs this is patently impossible. Perhaps we could lobby EU suppliers of manufacturing and finished goods to set up warehousing facilities in the UK, otherwise we may be forced to seek suppliers from outside the EU.

Without the harmonisation of VAT for cross-border transactions businesses that buy goods from the EU will be faced with higher VAT charges. Eventually, these higher charges can be reclaimed in the normal way but there will be an initial cash flow hit as goods are paid for (including VAT) before the input VAT is reclaimed on a quarterly VAT return. HMRC may help with this issue by introducing a self-accounting for import VAT scheme similar to the present scheme for imports from EU countries. Businesses affected would be advised to at least quantify the likely cash flow downside and if significant, plan for additional funding to cover the deficit.

Retailers will have a tough time if they buy perishable goods from the EU. Without frictionless passage of goods across the Channel, delays could cause all sorts of issues. If warehousing in the UK is not possible, it is difficult to see how we could maintain our supplies and keep the larger supermarkets stocked.

We have less than nine months to prepare, and wherever your business sits in relation to trading with the EU you should by now be making contingency plans to cope with the likely Brexit effects. We are certainly working with and supporting our clients in this way. If you need help with this process, please call. 

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