As the clock ticks down on the end of transition, organisations are running out of time to get ready for Brexit. With fewer than 100 days to go, Tom Rathborn looks at where negotiations are, what we are seeing in the market and the key things for business to focus on.
A busy few months ahead
Talks are ongoing, but little apparent progress has been made.
In recent weeks, we have seen the ramping up of rhetoric from both sides in advance of the crucial European Council meeting in mid-October. The Prime Minister has identified this as the date that, if an agreement is still not forthcoming, it is time for both sides to “move-on”, leading to a No Deal Brexit.
As we have learned over the past four years, it's hard to know how much of what the government says is to pander to a domestic audience and how much is genuine policy. Those on the inside remain adamant that the UK is fully committed to getting a deal with Europe, but you could be forgiven for missing that from what you read in the papers.
While it may seem that both sides are far from reaching an agreement, this is exactly where we were 2019. Much disagreement and confrontation, then at the last minute, concessions were made and a deal reached.
Could we see the same thing now? Only time will tell.
Chances of No Deal Brexit rising, but an agreement is possible
The important difference between this deadline and previous ones is the makeup of the UK parliament.
Boris Johnson has a large majority, built on a manifesto that accepted a No Deal Brexit. This was not the case ahead with previous deadlines. The last parliament was against a No Deal Brexit and voted to prevent it, but things are different now.
Simply put, the maths has changed.
Increased provocation in recent weeks combined with a parliamentary majority for No Deal Brexit means it is a greater risk than ever before. That said, Boris Johnson has shown his willingness to be flexible to get a deal over the line.
We will find out shortly whether pragmatism outweighs purity when it come to Brexit.
Too many still don't think you can plan for a No Deal Brexit, but you can
Most businesses have done some thinking about Brexit, but many still feel unable to move their planning onto the next level.
Too often, organisations think that a deal will remove the need to make any changes. This is simply not the case. Regardless of whether a deal is reached between the UK and the EU, changes are coming.
On January 1st 2021, deal or no deal, the UK will leave the single market and customs union, and the free movement of people will end. These are all things that will potentially require businesses to take action.
Many of these steps are the same, regardless of whether a deal is struck or not. The necessary information to take planning to next level is there if you look for it.
Stockpiling for No Deal Brexit is back
Ahead of previous Brexit deadlines, many businesses sought to protect against possible border disruption by holding extra inventory. This is happening again.
Businesses have learned lessons from before and refined their approach, being more strategic in what they hold and better utilizing available space on-site, rather than renting as much additional capacity.
Organisations are planning to hold additional stock at all levels, from finished goods to spare parts. Some are even using it as an opportunity to buy stock in foreign currency ahead of any depreciation in the pound.
Stark differences between a deal versus a No Deal Brexit
With talk of a Brexit deal being a “bare bones" agreement, implying the most basic of arrangements, it is easy to think that getting one is not that important to business. What is clear from conversations with both private companies and local government, is that this could not be further from the truth.
While a free-trade agreement (FTA) may offer little to the service industry, for other sectors it is invaluable.
Sectors reliant on the movement of goods across borders, especially those with potentially high tariffs such as food and drink and automotive are desperate for an agreement to be reached. Clients in the automotive sector face tariff barriers ranging from 10-22% on finished goods alone. A deal reducing these to zero is vital to their survival.
This concern spreads to the public sector too, with local authorities aware of the economic make up of their regions and concerned about the deep impact the failure to get a deal will have.
Make sure you have enough cash to get through a few months’ disruption. Ensure your forecasting using multiple different scenarios
Have options of where product comes in and be flexible if you can. If certain ports or suppliers experience difficulty, have a plan B ready to go
Keep talking to key stakeholders – this includes banks, suppliers, customers. We have seen firsthand how open lines of communication have helped businesses keep the show on the road through uncertainty and disruption
The training grant will cover up to £1,500 per employee for external training and £250 for internal courses
The recruitment grant will give you £3,000 towards recruitment costs for each new employee and up to £12,000 to cover the salary costs for each new or redeployed employee
Review social security positions
Post-Transition, EU regulations will no longer apply. Whilst negotiations are ongoing and the final outcome is still unclear, indications are that there may be agreement to mirror the current EU regulations for social security. Notwithstanding this, organisations still need to consider:
reviewing the social security position of their current mobile employees to ensure coverage is up to date
assisting with relevant social security applications in home/host locations
the potential impact if no agreement is reached and old bi-lateral agreements need to be relied on.
If possible, bring payments of intra-group dividends, royalties and interest forward to before December 31, 2020 to benefit from European Directives. Consider domestic and treaty positions for 2021 and beyond.
Ensure transfer pricing rules are up to date
Transfer pricing policies will need updating as new operating models are set up and intra-group transactions are implemented. It is particularly important to account correctly for the intangibles used and exploited around the group post-Brexit and in any pre-Brexit planning.