03/05/2021

How Brexit affects businesses: some lesser-known consequences

Doing business Europe

Brexit in a nutshell

Four and a half years after the referendum of 23 June 2016 was held, the European Union and the United Kingdom eventually reached an agreement on 24 December 2020 just before reaching the cliff-edge on 31 December. So, what has changed?

Well, we all knew Brexit was going to impact our lives in one way or another. For instance, by putting an end to the free movement of people between the United Kingdom and the European Union, Brexit impacts any Brit wanting to live, work or study in an EU member state, or any EU national willing to travel (they will now need a passport to cross the British border or even a visa for stays longer than six months.) But little did we know or imagine how much it would impact our business lives…

From ‘Eurocracy’ to a new administration burden

Although the European Commission and the British government tried to make us believe Brexit would be simple (that’s a good one), the reality is quite different. The Brits thought they were escaping a terrible bureaucracy, but Brexit actually creates more red tape.

As they never had to worry about all this before, businesses on both sides of the English Channel are tearing their hair out, not understanding how they should proceed. And the press has not talked about all of these potential disadvantages of Brexit yet. But don’t worry, we gathered for you some of the most unexpected post-Brexit issues and the good news is that TGS can help you overcome them!

Delivery terms: The Incoterms

Until the end of last year, businesses have moved their goods across the English Channel without really thinking about the Incoterms, but they now become really important because they define where the responsibility lies between the buyer and the seller.

On the one hand, the Ex-Works establishes that the buyer is liable for both export and import declarations, risk insurance, shipping costs as well as the payment of duties. On the other hand, the Delivered Duty Paid (DDP) determines that it is the seller who bears those costs and responsibility. And in-between, there are nine other Incoterms sharing the responsibility between the buyer and the seller.

As a result, lots of goods are now stuck at either side of the border because finding a customs agent able to deal with these formalities is proving problematic.

Product origin and double-duty costs

The origin of the products is a real issue for British and European businesses. You may think that you are shipping from the UK or the EU but the reality is sometimes different. For instance, if the goods (or a part of it) were previously imported from outside Europe/UK, then the businesses end up paying double duty costs. That is why it is crucial to know perfectly and understand your supply chain.

Free movement of capital and double tax treaties

Before Brexit, there was no withholding of taxes on the dividends or most other income within the EU. This is now gone for the UK. In order to avoid double tax, the Brits now need to deal with a double tax treaty which is different for each of the 27 Member States of course. (Where’s the fun otherwise? 😉).

Exemption of audit

Prior to the Brexit deal, it was possible for small companies to be exempted of audit provided that the parent company could give a guarantee to the creditors of the company. This is not possible anymore for parent and subsidiary companies where one is in the EU and the other in the UK. This naturally puts the costs of their business up!

Freight agents and postponed VAT accounting

We also acknowledge some confusion regarding the freight forwarders and their delivery fees: by using their deferment account, shipping agents cause unexpected costs to the customer importing goods to the UK. We have also noticed some other unexpected charges called “Brexit supplement” or “government supplement”, which seem to be quite mysterious to everyone…

CE marking vs UKCA marking

Most goods that previously required the CE marking on the market in Great Britain (especially for the food trade, medical products and electrical goods) will now need the UKCA, i.e. the UK Conformity Assessed, instead. But if those goods are also exported to any EU country, they also need to be compliant with the EU standards, so they need to be registered on both sides.

B2B: use and enjoyment rules

Something that is not talked about a lot in the Brexit information is the new obligation for suppliers of B2B services (especially for telecom services and electronically supplied services) to apply the use and enjoyment rules of the recipient country. That means that the VAT rules will now be the same as the current rules that apply for doing business with a business outside the EU so that the service supplier should have a registered address in the country where the services are provided.

All these formalities and administration, in general, are going to cost a lot of money to businesses, which is going to cause some inflation, particularly in the United Kingdom.

But Brexit will not only affect the British market. It is indeed affecting both sides. With Germany and France, the UK was one of the strongest EU economies and represents 15% of the EU population. Brexit thus removes quite a big chunk of the European purchasing power…

How can TGS genuinely help you and your clients?

High level of expertise and super helpful contacts

We have thus seen that it is particularly complicated to navigate the EU system if you are a British business, and likewise if you are a European business, it is also extremely difficult to navigate the UK system. And Covid-19 does not help to find your way around this new trading landscape. 😉

TGS helps you ride out this perfect storm thanks to its experts in the UK (have a look at the fabulous work of our British member in this regard) and the main EU countries. Our network has also direct and indirect contacts with tax authorities in the EU and the UK which can be extremely helpful!

Size does matter!

It is mostly the small and medium enterprises that are suffering from the new Brexit deal. And it has always been TGS concern to help and deliver the best quality service to SMEs. In comparison to other networks that are so huge that you get lost in them, TGS is a decent-sized and thus more approachable network which grants you an easy and quick access to all the expertise that you need.

Rather than getting separate advice coming from different places, our members and clients are given an efficient and holistic service that will point them in the right direction for each problem they could face in their post-Brexit strategy. Working with TGS ensures you get the right advice to make sure you move your goods from A to B as smooth and seamlessly as possible!

Brexit could be compared to removing an organ from a body: everything is all interconnected, everything relies on everything else. It is hard to keep everyone the same and healthy.

Jonathan Franks, Hillier Hopkins

Are you struggling with Brexit formalities? Don’t hesitate to contact us, we will be more than happy to help!

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