It’s been five months since the post-Brexit transition period ended with the Trade Corporation Agreement coming into force on 1 January 2021. Now businesses have had time to adapt to the new rules, Nick Farmer, Partner at Menzies, provides tips on how to make sure your business continues to operate smoothly.
Businesses have had to deal with their fair share of challenges over the last 15 months, with the ongoing coronavirus pandemic as well as the end of the Brexit transition period on 31 December 2020.
Almost halfway through the year, the post-Brexit landscape might be a more familiar entity for businesses now. However, according to Nick Farmer, a Partner at Menzies specialising in tax advice for SMEs, there’s no denying that the Trade Corporation Agreement (TCA) between the EU and the UK has meant a complete sea change in the way companies have had to do business with the EU.
With reports that due to Brexit, some SMEs have decided to suspend trading internationally (at least temporarily), what advice would Farmer give them, so they feel more confident to get back to it?
“To start with, there are two things businesses need to factor in,” he says: “lead time and local regulations for each potential trading country”.
Farmer explains there’s no denying that more advanced planning is required so businesses can make sure they are still compliant when trading internationally, whether they’re planning to deploy staff or figuring out VAT rules, or the requirements for local visas and permits. And rather than just having to familiarise themselves with one set of regulations for the EU, they now need to ensure they look at the regulations on a country-by-country basis. For instance, “just because a business has traded in Spain, it doesn’t mean it’s also compliant to trade in Italy as the regulations might be different; even more so when looking beyond the EU,” explains Farmer.
Menzies put a lot of work into reaching out to their network of partners in a variety of countries on behalf of clients who won contracts abroad, so they are in a position to help answer questions such as: “Do they need to register for VAT? Do they need to register for any local permits? Are there any sectors that they can't operate in within that market?”
With those kinds of issues to deal with, Farmer emphasises that “allowing enough lead time is key”.
Farmer acknowledges that in addition to allowing more lead time to research regulations and ensure businesses are compliant, there could also be more cost associated with it than in the past. “However, while it might not be as easy as before to trade internationally, it’s certainly not impossible. You just have to work through the new rules and understand if there are any additional cost requirements, such as for employing extra staff to do the paperwork and research.”
To keep the cost to a minimum he encourages businesses to do their own research. One of the key things SMEs need to identify is where to turn to. For the time being “it's all been a bit freer and easier” because the level of checks is being phased in on the UK side. But down the line businesses must ensure they haven’t made a mistake and suddenly get some penalties. It isn't always about getting costly advice from professional advisors though, “there's a lot of free information out there, which people can access before confirming the details with professional advisers”, he adds.
Both Menzies and ICAEW have their own Brexit hubs that provide key guidance as well as links to external resources and Government advice (visit the ICAEW Brexit hub and Menzies Brexit hub for more information).
However, changes to how businesses need to trade internationally also mean that now more than ever businesses must prove that they can adapt and change. One of the other key things they should do is “evaluate their business model and decide whether the way they previously operated is still the most suitable way”, says Farmer. For instance, if a business is importing and exporting goods from and into the EU, would it be more cost-efficient in the long run to set up a hub operation in the EU and take goods directly there while employing staff locally?
Farmer adds, “perhaps one of the ironies of Brexit itself is that businesses have decided to establish themselves in the EU to invest in the EU. It was people’s way to take back some control, while some businesses needed to put down roots in the EU to make sure they could trade more efficiently.”
This might even mean looking beyond the EU. Menzies has been particularly busy with supporting businesses that want to trade with and in the US. “There are examples where clients are dealing with customers in the EU that no longer want to trade directly with a UK business, because of the difficulties from their side and therefore, they've had to look to change their business model to accommodate that.”
Businesses have suddenly started to understand that they do need to make some changes. And they may need to establish themselves somewhere else to be able to continue to trade as freely as they previously did and figure out what markets are the right markets for their business. “And this may not just be on our doorstep anymore.”
Nick Farmer is on the panel for next month’s ICAEW Virtually Live (15-17 June) session “Brexit: six months in how have organisations adapted?”. You can sign up for this and other sessions here.
Nick Farmer will speak as part of a panel at Virtually Live 2021 on how organisations of all sizes have adapted almost six months since the end of the transition period, and what change is yet on the horizon. In particular, the panel will be looking at physical trade, including the complexities around VAT and origin rules, how the provision of services has been impacted, and how the workforce will change.