Brexit – a checklist for businesses
23rd November 2018
The UK's impending departure from the European Union will bring change for businesses of every size and sector. This checklist has been created to assist businesses with the various challenges and opportunities presented by Brexit.
The starting point is to ensure you have a thorough understanding of the commercial implications that Brexit will have on your business. No two businesses face precisely the same challenges; everything depends on the nature and footprint of their operations as well as those of their suppliers and customers. As such, every business should consider its own particular circumstances based on factors such as location, regulatory environment, the location of its key customers and suppliers, as well as the make-up of its workforce. In particular, you may wish to consider the following:
1. Human Resources
What percentage of your UK workforce is from the EU27? Do your staff know the next steps to take to register as an EU citizen working in the UK? If EU citizens, excluding the Republic of Ireland, want to stay in the UK beyond 31 December 2020, they and their close family members will need to apply to the EU Settlement Scheme which will open fully by the end of March 2019.
You may wish to utilise the Employer Toolkit published by the Home Office, as a method of supporting your staff who are applying for the Scheme. You can also signpost your staff to further information and regular email updates from the Home Office here.
Future skills needs
The British Chambers of Commerce is currently advising the Home Office on future changes to the UK’s immigration regime. In the meantime, consider how your skills and labour needs may develop over the next few years. Will you need to hire someone from outside the UK? What steps will you need to take to hire them? Could different arrangements (remote working) be feasible for your business?
Check the non-EEA visa requirements for the country you are visiting. Non-EEA business visitors to the UK currently require a Standard Visa which involves fees and processing time. If you transfer staff between businesses in your group, or run a graduate training scheme, restrictions may apply. Current non-EEA Intra Company Transfers fall under the UK’s Tier 2 sponsorship arrangements, which require a sponsor licence and come with regulatory and record keeping requirements for employers.
2. Cross-Border Trade
UK/EU Customs Checks
As a ‘third country’, UK exporters to the EU after Brexit may in future be required to make customs declarations. You may therefore need to consider what customs procedures you comply with for trade with non-EU markets. Are you ready, if the need arises, to apply these to imports from or exports to the EU?
HMRC has published an information pack to help businesses plan ahead for the contingency of a ‘no-deal’ Brexit. Also click here and here to see the Government’s technical notices on trading and exporting controlled goods if there is ‘no-deal’.
Potential delays at UK/EU border
With potential customs checks between the UK and the EU, there may be delays at the border. How resilient is your supply to potential border delays? Do any contracts you have include “penalties” for late delivery? Do you need to increase your inventory and/or buy additional storage space?
Tariffs on UK-EU trade
You should consider the potential impact of a situation where there are tariffs between the UK and the EU, based on the Most Favoured Nation (MFN) tariffs which would apply if the UK failed to reach an agreement with the EU.
In light of the above, it will be useful to know the HS codes (international classification system) for your products. Do you know the EU MFN tariff that is applicable to your product? If the UK and the EU do not reach an agreement that removes all tariffs, what would the impact of the MFN tariff be on your cost base?
Rules of Origin in UK-EU trade
Even if the UK has a zero-tariff trade agreement with the EU, companies will need to prove that their product is of UK origin to benefit from this (usually this means that 50-55% of the product has to be locally sourced). The exact terms of these rules between the UK and EU are yet to be negotiated. Will your goods meet the rules of origin test if EU content no longer satisfies the test?
If you are a supplier, has your customer asked you to provide proof of where you source your content? Would you be able to provide it if asked?
If you buy your components from local suppliers, have you thought about conducting an audit of where they source their materials?
Some of the terms in your existing contracts may no longer be appropriate post Brexit, or may raise legal or practical questions in future. It would therefore be prudent to conduct an audit of existing contracts, and use in connection with exporting, which may include addressing the following issues:
Does the agreement contain territorial references to “the EU”? If so, will that include the UK after Brexit? This will depend on how the EU has been defined. You also may also want to consider references to any EU legislation, in particular regulations which are directly applicable and any consequential changes.
In what currency must payments be made? Who bears the risk of change in exchange rates during the term of the contract? Are the prices fixed in a particular currency and is there a mechanism to vary the charges in light of any volatility in exchange rates?
Who pays tariffs? The provision of goods or services could become subject to additional tariffs, either in relation to exports to and imports from the EU, or to and from countries with which the EU has a trade deal. Who would pick up the costs of those tariffs? Are sales subject to Incoterms and, if so, which Incoterms? Will they have a different effect?
The possible impact of tariffs on each party needs to be worked through, taking into account the current delivery and payment arrangements. Where Incoterms are used their provisions should be carefully checked. Consider adding wording to exclude any ordinary pan-EU tariff charge, which is not intended to be caught.
Is there a hardship clause? Is there any clause which deals with which party should bear the burden of increases in costs of supply, fluctuations in interest rates or exchange rates, and other changes to factors that the parties took into account when they made the deal? If so, could this be triggered by Brexit?
Who is responsible for customs clearance? Who will pick up the cost and expense of managing this process? Are sales subject to Incoterms and, if so, which Incoterm? Are those incoterms still appropriate? What impact might customs control have on agreed service levels and delivery timetables?
Do personnel need to travel between the UK and the EU to perform the contract? How will this need to travel be affected by changes to rights of free movement when the UK leaves the EU?
Have you considered Choice of Law and Jurisdiction? English contract law is mainly derived from the common law. Commercial contracts are subject to limited statutory intervention, and that intervention largely originates from UK statutes. This means it is unlikely that English contract law will be affected by Brexit, save in respect of consumer contracts and other specialist contracts. However, will the choice of English Law be acceptable in future in international contracts?
It should be noted that within the EU, jurisdiction and the regulation and enforcement of civil judgements is principally governed by the recast Brussels Regulation, which will no longer apply between the UK and EU27 following Brexit. This raises several jurisdictional issues, such as whether parties in member states’ courts will respect an exclusive jurisdiction clause in favour of the English courts. Similarly, the UK will also cease to be a party to the Lugano Convention and the Hague Convention on Choice of Court Agreements on Brexit.
Are there data transfers from the EU to the UK? The UK Government has announced it has no plans to put in place limitations to data transfer by UK businesses into the EU. However, it warns that the EU has made clear that the UK will not automatically have “adequacy status” as set out in Article 45 of the GDPR once it leaves the EU. This means that in the event of a ‘no-deal’ Brexit, from 23:00 on 29 March 2019, EU businesses will not be able to transfer personal data into the UK unless an appropriate legal basis for such transfer can be identified. If so, Standard Contractual Clauses or other mechanisms should be considered to ensure those transfers can continue post-Brexit.
Will Brexit result in tax changes? Brexit may result in changes to the tax treatment of payments under the contract, for example changes to the way VAT is applied. If you trade in services, post Brexit, the working assumption is that you may need to register for VAT/appoint a fiscal agent in every EU member state where you supply customers.
What effect will termination provisions have? Absent a suitable express reference to Brexit in contracts, the market view and case law suggest that force majeure clauses are unlikely to assist on Brexit. Similarly, whether the effects of Brexit will trigger a material adverse change clause depend on how individual clauses are drafted.
To access the Government’s technical notice on civil legal cases if there is a ‘no-deal’ Brexit, please click here.
4. Intellectual Property (IP)
It is unclear whether trademarks registered in the EU would be applicable to the UK in the future. Do you have any IP rights? Have you contacted legal advisors to seek advice on how to protect your IP rights after March 2019?
5. Competition policy and state aid
After leaving the EU the role of policing and ensuring fair competition in UK markets (including state aid) will fully transfer to British regulators and agencies. This could result in differences to the current approach – for instance on approvals for mergers and acquisitions. The Competition Markets Authority (CMA) has published a notice on its role after Brexit.
If there is no Brexit Withdrawal Agreement before March 2019, the Government has developed a ‘no-deal’ competition Statutory Instrument which states the following:
- Mergers: if the European Commission has issued a decision on or before 29 March 2019 (unless the decision is annulled, in full or in part, following an appeal), the UK has no jurisdiction.
- State aid: the Government is expected to pass secondary legislation which will transpose EU state aid rules into UK law and provide for the CMA to take on its new state aid role, following which they will publish further details on how this function will operate.
- Antitrust: after the UK’s exit from the EU, the CMA will no longer have jurisdiction to apply EU rules on anti-competitive agreements (including cartels) or on abuse of dominance. In practice this is likely to make little difference since UK rules are very similar to EU rules.
6. Other considerations
Could you benefit from authorised economic operator (AEO) status? This international scheme allows trusted entities simplified customs procedures. It is best to apply early, the application process is complex and might take up to a year.
EU funding sources: Consider your sources of funding and whether they will have an effect on projects, cash flow and workforce post-Brexit. Have you considered alternative funding sources?
From early December 2018, you can apply for funding to help your business complete customs declarations, in preparation for the UK leaving the EU. You can apply to get funding for training that helps your employees to complete customs declarations and processes and IT improvements to help your business complete customs declarations more efficiently. Please click here for more information and how to apply.
Identify short and long-term economic effects of the decision to leave the EU: For example, inflation, borrowing costs, exchange rates and consumer confidence.
Regulatory Frameworks: Have you considered how leaving the EU will impact regulation of the sector in which your business operates? In its Smooth Operations Report, the Confederation of British Industry has published the results of its consultation with hundreds of businesses of all sizes, as well as its 150 sector specific trade associations to bring together the views of 23 parts of the economy of the future relationship between UK and EU rules. The report explains the implications for regulatory alignment and enforcement of sector-specific rules on business in all sectors, such as Aerospace, Automotive, Consumer Goods, Financial Services, Maritime and Shipping and Agri-food and drink.
We hope that you found this checklist helpful and informative. If you would like more information on how Brexit may affect your organisation, or how to plan for Brexit, please click here.
Our team of experts here at Ward Hadaway have also created a guide to the potential impacts on you and your business in a range of different areas. Please click here to view.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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