Brexit and its Implications for Your Firm: 10 Steps on How to Prepare for the “No Deal” Scenario
The divorce battle between the United Kingdom and the European Union is in full swing and the result is still unclear. At present, the only certain thing is that the two-year period will soon expire. Several possibilities exist as to the timeframe and the ultimate setup of the relations between the United Kingdom, the European Union and other countries, including the Czech Republic. This inevitably complicates all additional steps that you should take prior to the final decision. To be prepared for the “big day”, which falls on 29 March 2019 or 30 March 2019 considering the time zone difference, it is advisable to expect the “no deal” or “hard Brexit” scenario given the circumstances. Our ten recommendations may be of assistance to you in this respect.
Taxation, law, customs issues, employing British nationals and risk management – Brexit will affect all of these areas. However, how should you prepare for it when it is still unclear what exactly will happen? It is advisable to prepare for the “hard Brexit” option – ie, that the UK will crash out of the EU with no deal. What will this mean in practice?
- The law and advantages associated with the EU will cease to apply in the United Kingdom, which will be given the status of a “third country”, such as China or the US.
- The free movement of goods and services will be terminated. Customs checks will be introduced on borders and delays may be expected in transporting goods. Standard customs tariffs will apply to goods.
- The application of value added tax in supplying goods or providing certain services will change. The process of refunding tax paid in the United Kingdom to payers not registered in the United Kingdom for VAT purposes will also change.
- Certain UK nationals will no longer have free access to the Czech labour market.
- The existing risk procedures will no longer apply, namely those relating to financial, security, regulatory or technological risks.
The Brexit process is complicated and so far unclear as to the outcome. The situation is all the more complicated since the UK is the fifth largest economy in the world and the second in Europe – its share in the EU’s GDP is 15%. As a result, Brexit will have the most profound effect on the economies of Germany and the US, which are some of the main exporters/importers.
How will Brexit affect the Czech Republic? In a worst-case scenario, annual GDP would decline by CZK 10 billion, with Czech firms losing CZK 30 billion in revenues. For more details, refer to our analysis Practical Implications of Brexit, which provides comments on how the UK’s exit from the EU will affect individual Czech industries. And prepare for the worst in ten practical steps.
Brexit at the Eleventh Hour: Top Ten Priorities
- Designate the persons responsible for individual risks and Brexit “action points”.
- Conduct an audit of the contracts concluded with your British partners as early as possible. If you are going to conclude a new contract with a British counterparty, do not forget to include a detailed Brexit clause.
- Pay special attention to a review of business contracts in relation to INCOTERMS.
- Review the tariff classification for correctness and calculate the customs, if relevant.
- Verify the requirements of import to the United Kingdom – may the goods enter the country without a permit or licence?
- Review all you regular transactions (supply of goods and provision of services) with UK firms. Verify whether the application of VAT will change post-Brexit.
- Verify the amount of British VAT you have paid and so far not recovered for 2018 and Q1/2019.
- Review whether your employees – British nationals – are residing in the Czech Republic based on a temporary or permanent residence permit. Prepare for a possible change in the recruitment of new employees from among British nationals after 29 March 2019.
- Conduct a comprehensive impact analysis from the perspective of risk management, prioritise risks and determine appropriate measures for their mitigation.
- Implement the measures you have set, review them and assess their efficiency and effectiveness – have they reinforced you?