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For Americans, October 31st is Halloween. But this year in the United Kingdom, it’s the night when the U.K. (barring U.K. Prime Minister Boris Johnson's potential new agreement) will leave the European Union. Brexit, depending on whom you ask, could be a trick or a treat. Either way for importers or exporters to the U.K. or E.U., it’s a disruptive event that’s coming in one shape or another.
Events are changing at a lightning clip. Boris Johnson has secured a deal that Parliament still has to approve on what many are calling “Super Saturday”. The vote may fail; and yet Parliament has passed a law forbidding the U.K. from leaving without an agreement.
Before the October 31 deadline, there may be a showdown between those demanding a hard (unmanaged) Brexit versus a soft (managed) Brexit. And, if you’re not prepared for every potential outcome, the scary noise you hear this Halloween night could be the rustle of complications rippling through your supply chain.
Hard Truths About a Hard Brexit
The sudden establishment of tariff and non-tariff barriers will certainly affect most RoRo (roll on roll off) Ferry crossings from mainland Europe and the UK (like the port of Dover and Calais), which will result in customs declarations rising precipitously, perhaps as much as 5X. With new controls on the EU side, truck traffic could be slowed 60%, resulting in waits of 2+ days during the first three months.¹
Many companies who have previously been established in the UK for their EU operations will have to consider registration of their business in the mainland EU.
And even if your goods don’t cross the U.K.’s borders, Brexit will still be a factor. Congestion from around the British Channel could affect nearby ports, causing significant delays. On the accounting side, your VAT (value-added tax) payments will likely also be impacted. “The long and short of it is that companies that trade into, out of, or transit goods across the U.K. will have to understand global trade like never before,” said Jamie Houlihan, Flexport’s Global Customs Lead for Amsterdam.
Making the Best of the Worst
The good news for businesses is that the U.K. customs authority (HMRC) is working hard to empower importers with clear information and simplified processes to facilitate the quick entry of goods post Brexit. Here are the steps you or your customs broker should take now:¹
-Ensure your business has an EORI number that starts with GB. While HMRC says it will initially allow non-GB EORI (The Economic Operator Registration and Identification) numbers following Brexit, this will be a temporary measure. Before long, an EORI number starting with GB will be required to continue importing goods to the U.K. You can get one here.
-Understand the correct classification and other international trade requirements for the goods you’re importing. Choosing the correct code from more than 5,000 possibilities is critical as errors can trigger hefty fines and long delays. A new level of rigor may be applied to harmonized schedule (HS) classifications, for customs and export declarations alike. Having a customs broker can be especially helpful here.
-Know what incoterm you use. In most cases, buyers will be obligated to appoint a customs agent and act as the importer of record under DDP(Delivered Duty Paid) and EXW (Ex Works), while sellers may be obligated to file for export or import formalities in or out of the UK. In both cases, you, as the seller or buyer, may be required to appoint and provide specific information to a broker to act as an agent on your behalf for customs purposes.
-Know how to leverage TSP, the simplified procedures introduced by HMRC. If you move goods to and from the UK from any of the post-Brexit EU27, you should apply for a Transitional Simplified Procedure license. This document lets you make minimal information declarations at port and postpone paying Duty/VAT in full up to six months post import. However, instead of waiting that long to submit your secondary declarations, we recommend you appoint a Broker to help with this process.
-Understand security deposits and duty-deferment facilities. HMRC will waive some security deposits that are currently in place and lift the need for some financial guarantees when you apply for your customs comprehensive guarantee (IPR/OPR/Bonded warehousing). Requirements for establishing a duty deferment will also be loosened. The government provides more information here.
-Stay up to speed on temporary tariffs. To facilitate trade after a no-deal Brexit, HMRC will institute a temporary tariff regime for 12 months with 0-rate duty on certain products. It will be guided by WTO law and apply to E.U. and non-E.U. countries alike. However, Parliament, the Prime Minister, and HMRC have not yet agreed upon the details. Stay tuned, or ask your customs broker.
-Expedite your exports. If you Trade goods where there is no buy or sell agreement between different entities in the EU and UK, you may have to undertake complicated studies to determine your valuation method within the WTO-level guidelines. Seek guidance from your broker or trade attorney to ensure no delays to your shipments if there is a D1ND.
-Reorganize your approach to VAT. Currently, VAT is paid upon import by a deferment or Flexible Accounting System (FAS account). Post Brexit, VAT will merely be accounted for in your VAT filing upon import, but paid later. With this shift to postponed VAT accounting, the need for VAT deferment and security guarantees goes away. Make sure your tax accountants know the latest ways to file and account for VAT, and implications of the changes.
As the U.K. Goes It Alone, You Don’t Have To
Let’s face it: the details surrounding Brexit and the potential implications for supply chains are complicated. But you don’t have to handle it alone. Your best course of action may be to appoint a customs broker, – who, as Houlihan puts it – “speaks Brexit.” Another useful option is to partner with a freight forwarder with an integrated customs brokerage and record of helping customers navigate major global events.
Here at Flexport, for example, we combine technology, service, and expertise to provide solutions other forwarders can’t. "When tariffs were due to hit on September 1, we were able to adjust our private air service schedule to land more than a dozen customers' goods 15 minutes early, before the deadline. That saved them a significant amount of money," explained Tom Gould Flexport Vice President, Customs & Trade Advisory.
Brexit is No Time to “Keep Calm and Carry On”
By taking the right steps now, including partnering with an experienced freight forwarder, you can help ensure that your supply chain is agile, responsive, and ready to adapt to Brexit.
“Businesses that passively wait for Brexit, tariff wars, or whatever comes next will pay more one way or another. But companies that actively prepare can find an upside where others don’t,” said Gould.
To learn more about customs-related matters and the latest on the global impact of tariffs on business, visit Flexport’s Tariff Insider.
And to get answers to your questions on the impact of the latest global tariffs, tune in to our recent webinar: The State of Trade — October Tariffs Q&A.
¹The primary source for this information is a live “Get Ready for Brexit” event held by HMRC. The information is valid at time of posting and may be subject to interpretation.