Brexit FAQ: How prepared are you?

General-FAQ| 7 min read
Reading Time: 7 minutes

Q. What is Brexit?

Brexit stands for “British exit.” It refers to the United Kingdom’s decision to leave the European Union. On June 23, 2016, the UK voted on the Brexit referendum, and the result was a slight 51.6% majority in favor of leaving the EU.

The UK officially left the EU on 31 January 2020, which marked the beginning of a transition period that is set to last until 31 December 2020.

Q. Why has Brexit taken so long?

David Cameron, the Prime Minister at the time, campaigned for Britain to remain in EU. After the referendum results, he resigned. To avoid leaving the EU without a deal (known as “hard Brexit” or “no-deal Brexit”), the government provided an extension twice to create time for negotiations.

A deal with the EU is important. No country has ever left the EU before, so this has created a lot of issues for the UK parliament and EU government to work out. Through negotiations, the UK hopes to retain a thriving economy and appease those that were not in favor of leaving the EU. Meanwhile, the EU provides its member countries with certain benefits, like trade agreements and the freedom for EU citizens to travel from country to country without strict visa requirements. The EU government does not believe it’s fair to allow the UK to leave but still hold on to those same benefits.

After Cameron stepped down, Theresa May took over the Prime Minister’s position. While in power, she aimed to pass the deal which she had negotiated with the EU, called the Brexit withdrawal agreement. After parliament rejected this proposition three times, May stepped down from her position on June 7, 2019.

Q. When is Brexit happening? 

The UK already left the EU on 30 January 2020 at 11pm (BST). At the moment, the UK is in a transition period that will end on 31 December 2020.

Q. Is the withdrawal agreement completed? What does it cover?

Yes, the withdrawal agreement has been decided. It sets the rules for the UK to leave the EU in an orderly manner. The document covers information on common provisions, citizens’ rights, problems due to separation across borders, a negotiable transition period, financial settlement, and more.

If there is a “no-deal” Brexit, there will be no withdrawal agreement.

Q. Will a no-deal Brexit happen?

As the end of transition period draws closer, the UK is facing another no-deal situation. Without this agreement in place, the EU’s laws and other agreements will no longer be applicable during interactions between the UK and the rest of the EU.

In the absence of a deal, the EU will treat the UK as a ‘third country,’ and trade between the UK and the EU will be regulated by the World Trade Organisation (WTO). This sudden change in rules may lead to higher trade tariffs.

Q. How else will Brexit affect trade?

The consequences of the UK leaving the EU will depend on how trade costs change post-Brexit. There are two scenarios in this situation. One, the UK could enjoy the same status as that of Norway with respect to its EU trade relations. Norway has a free trade agreement with the EU, which means no tariffs. It is also a member of the EU single market and complies to the policies and regulations in place to reduce non-tariff barriers.

Two, the UK is unable to cut a trade deal with the EU. Should this be the case, then following Brexit, trade between the UK and the EU will be governed by the World Trade Organization’s rules.

Post-Brexit, the UK will no longer be a part of the EU free trade area. This situation will have a spiralling effect. A few of the affected areas will be the import and export of goods and services, the employment of EU citizens in the UK and vice versa, transport and logistics, copyright, trademarks and patents, environmental industrial standards, and the transfer of personal information across borders.

Operation Yellowhammer mentions the worst-case scenarios in the event of a no-deal Brexit. Some of them include new immigration checks, an increase in prices for gas and electricity, and interrupted financial services across borders. Petroleum prices and the flow of data will also be disrupted.

Q. How will Brexit affect small scale business?

Small and medium scale enterprises (SMEs) are preparing themselves for Brexit however they can. The following are a few key areas that will be affected the most:

Employment: Tighter immigration rules are likely to raise concerns when it comes to talent acquisition.  Small businesses have to revamp their skill strategies before hiring. Reports say that there has been a drop in the number of EU nationals joining UK based companies. The uncertainty caused by Brexit is causing a skill shortage across the country.

Finance: The Bank of England believes that UK banks can manage the turmoil due to Brexit. However, this would cause market fluctuations, thus restricting the banks ability to lend money to businesses. To ease this issue, the UK government might establish the UK Shared Prosperity Fund (UKSPF). The responsibility of this fund is to fight social inequality by raising productivity in economically backward areas of the country.

Growth: The UK was one of the fastest growing economies amongst the G7 countries until the June 2016 referendum was announced. The International Monetary Fund (IMF) has predicted that the growth rate for the UK will remain just above 1.5 percent as long as the UK leaves the EU in an orderly fashion. The sectors which are most concerned with growth are import and export firms.

Q. How long will it take for my business to adapt to these changes?

It is difficult to be specific about the time frame, although reports suggest that an average of 15 months is required to prepare for the change. The EU states an ideal period of nine months. Businesses will be in a transition period until the end of 2020.

If the UK walks out without a deal, the transition period for businesses will remain uncertain. It is important that businesses start planning and setting measures to cope with the change.

Q. How will Brexit affect UK businesses with mostly UK customers?

All businesses in the UK will be affected in some way or another. So, all businesses must prepare to make modifications to their business processes. For example, if you are a product manufacturing company serving UK customers, consider whether your parts are imported from outside Britain. Operation Yellowhammer clearly states that there could be import delays because of HGV congestion. Delays can even occur in custom clearance areas. Owners may now have to seek replacements from local suppliers to keep their business going.

Service based companies, like marketing agencies, may be able to serve only domestic customers. There might be delays in sharing data until GDPR regulations are changed because some businesses may hold personal information on their EU employees that will no longer be permissible to share.

Aside from finding measures to overcome potential problems, the scope of business opportunities will also decrease. Businesses should consider this when drafting their preparedness plans.

Q. What is the Northern Ireland Protocol?

This means that Northern Ireland will comply with the regulations set up by the EU and will also follow the VAT rules during the movement of goods to, from, or within the Northern Ireland region.

However, Northern Ireland will continue to be a part of the UK’s VAT system. During the exchange of services, HMRC will collect VAT and revenue in the Northern Ireland region. If the businesses in this region are already VAT registered, then they do not need to register separately for the sale of goods within Northern Ireland.

Q. How will VAT be applied on goods exchanged between Great Britain and Northern Ireland?

During the exchange of goods between Great Britain and Northern Ireland, the applicable VAT regulations will stay the same. Sellers will charge their customers VAT on invoices, but sellers cannot reclaim it as input VAT. The customer can produce this invoice to reclaim the levied VAT as input VAT.

If businesses need to move their own goods from Great Britain to Northern Ireland, VAT will be applicable and it will be counted as output VAT in the VAT return. On the other hand, when businesses move their goods from Northern Ireland to Great Britain, then VAT will not be applicable unless the goods need to be sold.

Q. What is postponed VAT accounting?

In the Brexit Omnibus Bill 2020, one of the measures introduced is postponed VAT accounting. Once the UK leaves the EU on 31 January 2020, VAT and customs rules will be applicable on goods imported from 1 January 2021.

In the post Brexit scenario, you wont be required to declare the import VAT beforehand. Using, Postponed VAT Accounting, you will be able to declare and recover import VAT on goods on the same VAT return form. It will be applicable for goods imported into Great Britain from anywhere outside the UK and into Northern Ireland from anywhere outside the UK and the EU.

If you are not prepared to pay at the port, you can opt for postponed VAT accounting. You can record the import VAT in the VAT return under the reverse charge procedure. You may need to notify HMRC before you activate this process for your business. You may also be required to mention the EORI number and VAT number on your customs declaration form.

Q. How will Brexit affect business travel to most EU countries after the transition period?

If you are travelling from the UK to the EU, the UK passport holders travelling to the EU for work will have to follow the regulations set for the entry of personnel from a third country or non-EU nation. Visa-free travel is possible for UK passport holders visiting specific countries for certain business activities. This usually includes meetings with clients or attending conferences related to trade or work. Anything apart from this will require you to present your work visa.

You may need to confirm the purpose of your travel, show suitable arrangements for accommodation and funds, confirm that you have at least six month left on your passport before its expiry, and make sure that the trips are not more that 90 days in 180-day time spans.

If you are travelling from the EU to the UK, you will need to comply to new immigration rules. Similar to the previous situation, visa-free travel is possible if the business visits are well within the permissible limits set by the UK government. Beyond this, you may not be allowed to work or set base in the UK.

Q. How to assess if you are Brexit ready?

The UK government has come up with a checklist to help businesses prepare for Brexit. Organizations can create contingency plans based on an impact assessment. Click on this link and answer the questions to assess where you stand:

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