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Brexit is finally beginning: what happens next?

The EU-UK Withdrawal Agreement has now been ratified by the UK and European Parliaments - meaning the UK will legally leave the European Union at 11pm, UK time, on 31 January.

At this point we will enter an eleven-month ‘implementation period’, which ends on 31 December. During this period, the UK is - for all intents and purposes - a non-voting member of the EU.

The UK will continue to participate in and be bound by EU rules (including any new rules), the single market, customs union, free movement of people and EU programmes. With little changing on 1 February, businesses should now start preparing for 'full Brexit' at the end of the implementation period.

What happens when the UK leaves on 31 January 2020?

Little change to UK-EU trade

During the implementation period, businesses have continued access to markets and customs-free trade between the EU and UK.

UK may lose access to EU trade agreements

The Withdrawal Agreement binds the UK to continue to abide by these trade agreements – so imports from these countries into the UK will not be affected. However, third-party countries are not legally bound to treat the UK as a member of the EU and will not automatically apply the terms of EU trade agreements to UK exports. Some countries have yet to confirm whether they will roll over these trade agreements (eg Mexico and Egypt). 

Certain domestic tax provisions may no longer apply

While EU tax directives will continue to apply in the UK during the implementation period, there are some implications for tax. UK entities may fall outside the scope of some domestic tax law provisions in individual EU countries, creating potential exposure. EU-US tax treaties may not be binding in the US for UK entities.

What happens after the transition ends on 31 December 2020?

No extension

The implementation period expires on 31 December. The UK Government has ruled out any extension and has written this into law. Businesses should therefore plan on the assumption that the implementation period will end as intended

Leaving the EU customs union and VAT regime

New customs processes and administration will be needed, and business must take action to ensure compliance, as well as assess the impact on their business model.

Leaving the single market

Some non-tariff barriers will be inevitable, with additional regulatory requirements for goods and services.

The end of the free movement of people with the EU

The UK will introduce a common immigration system for EU and non-EU citizens.

Northern Irish protocol arrangements kick in

Northern Ireland will be both within the UK customs and VAT territory and regulatory regime and also within the EU customs union, VAT arrangements and single market for goods. This special status, which will last for a minimum of 6 years, means Northern Ireland has a ‘soft Brexit’, but that trade between Northern Ireland and Great Britain will be subject to some new checks and administrative requirements.

The UK enters a new relationship with the EU

This will be based on any agreements that have been reached by then. If no agreement has been made, the UK will trade with the EU on World Trade Organisation (WTO) terms. Business should plan now for these realities.

A lot is still to be decided

The UK and EU are seeking to reach a number of agreements before 31 December, including on equivalence of financial services rules and regulatory regimes, fishing rights, data protection (allowing transfer of data between UK and EU) and an EU-UK Free Trade agreement.

The aim of a trade agreement will be to agree zero tariffs and no quotas on UK-EU trade and measures that facilitate trade in services (eg mutual recognition of qualifications). It is possible that some tariffs could be applied in some areas, if the UK insists on having the freedom to diverge from a regulatory ‘level playing field’.

Regardless of whether a UK-EU trade deal is agreed, organisations need to prepare for:

  • changes to customs processes and VAT rules
  • regulatory barriers. Being outside the single market means there is a strong likelihood that the UK will be treated as a third-party country in terms of many regulations, including provision of services, food safety and labelling, and plant and animal health.
  • disruption at borders. This will arise from freight not being ready for the new customs processes and product checks, which apply from 11pm on 31 December, whether trade is based on WTO or Free Trade Agreement. With a year to prepare, these delays should be diminished, but there may still be some freight and lorries with the wrong paperwork that clog up the ports.

You have eleven months to:

Protect value

Get ready for the changes that will take place at the end of the year:

  • Review any existing ‘no deal’ Brexit plans. Much of your existing planning for business continuity and compliance will still apply, but will now need to be mainstreamed into business processes.
  • For import-export, implement new customs processes and systems, including new compliance requirements for Northern Ireland.
  • Identify and track your hot spots. What are the areas of risk or opportunity that will depend upon the detailed EU-UK negotiations? Develop a mitigation plan for the worst-case outcome and track the negotiation progress.

Create value

What do your customers, suppliers, investors and employees need during this period of change?  We have been working with a variety of clients who have developed different approaches, including:

  • assessing the impact of Brexit on their customers and addressing customer needs
  • assessing Brexit impact if you are buying or selling a business
  • helping your supply chain get ready for Brexit

Transform value

Optimise your business model and processes for the post-Brexit world:

  • What do you need to change to deliver your aims as efficiently and effectively as possible, and what opportunities do the new trading frameworks create?
  • Consider wider changes taking place, including potential trade deals with the US and elsewhere, immigration and skills policies, and new industrial and agriculture subsidies and new regulatory approaches. What opportunities could Northern Ireland’s special status offer manufacturers?
  • Take a ‘whole tax’ approach to assessing operational and locational changes.
NAVIGATING BREXIT
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Need practical advice on navigating Brexit?

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