Historic defeat risks no-deal Brexit
16 Jan 2019
With 10 weeks to go before the UK is scheduled to leave the EU the Prime Minister’s failure to win approval for the terms of her withdrawal agreement by a 230-vote margin, the worst government defeat in British history, has heightened the uncertainty businesses face
16 Jan 2019
Following last night’s parliamentary vote which decisively rejected a deal following more than two years of negotiations, it is not yet clear what the government intends to offer as an alternative.
Under the current arrangements agreed when Article 50 was first triggered, the UK is set to exit the EU on 29 March. While there has been talk that the deadline for leaving could be extended, there is no clear signal that this is the government’s intention, but the size of the opposition on the so-called ‘meaningful vote’ means that present deal has no hope of being accepted by MPs.
Carolyn Fairbairn, CBI director-general, said: ‘Every business will feel no deal is hurtling closer. A new plan is needed immediately. This is now a time for our politicians to make history as leaders. All MPs need to reflect on the need for compromise and to act at speed to protect the UK's economy.’
Michel Barnier, the EU’s chief Brexit negotiator, stated: ‘It is now for the UK to tell us the next steps. We will remain united and determined to reach a deal.’
Andrew Gray, head of Brexit at PwC, said: ‘The result of today’s meaningful vote shows that the certainty businesses are seeking is still out of reach. Until a way through can be found, it is important to remember that “no deal” is the default outcome.
‘Businesses in the UK and EU need to accelerate their no deal contingency plans. For those who haven’t started implementing no deal actions, there are still steps they can take to minimise disruption. But the longer they leave it, the more difficult this will be.
‘We’re advising organisations to urgently activate their no deal plans, while still preparing for both a deal and no deal outcome. The time to act is now.’
If the UK leaves the EU under a ‘no deal’ scenario, from that point the UK would enter all future trade agreements set out by the World Trade Organisation (WTO).
Dr Jonathan Owens, lecturer in operations management at the University of Salford Business School, and expert in supply chains, said: ‘Many government supporters of Brexit have consistently argued that failing to reach a deal wouldn’t be all bad and leaving with no deal would mean the UK could work to get a favoured nation status under WTO to trade with the rest of the world.
‘However, regrettably this would not be as simple as it sounds to develop, ie, new trading channels, routes, tariffs, supply chains etc.
‘For example, if we consider tariffs, Britain currently trades with twenty-four countries and territories under the sole agreement of WTO rules. However, with sixty-eight countries, it has either fully or partly in place the EU free trade agreement, that enables the UK to trade on better terms.
‘Inevitably, while there would be some disruption, these issues are not insurmountable. After all, UK businesses are resilient, adaptable, resourceful.’
Even before the prospect of leaving with no deal became more likely, concerns have been raised about the potential administrative burden and confusion likely to arise from significant changes in customs arrangements for businesses which buy and sell in the EU, along with new statutory obligations. Treasury estimates suggested increased import and export declarations could add £6.5bn in costs for businesses.
Commenting on the news Richard Asquith, VP of global indirect tax at Avalara, said: ‘Over 145,000 companies are now headed for major tax liabilities on a hard Brexit. They will have to pay duties charges, on average ranging from 4% to 40%, and the government has failed to launch its promised no-deal guidance VAT deferment scheme.
‘The pressure will now all be on HMRC, which is already struggling with the introduction of its new customs declarations database, CDS. It may now have to delay its Making Tax Digital (MTD) for VAT, which is launching on 1 April for over 1m VAT registered businesses.’
Alison Horner, indirect tax partner at MHA MacIntyre Hudson, said: ‘A pro-active approach to mitigate these issues needs to begin with ensuring your business has the correct commodity codes and any export licences needed to trade.
‘It is also crucial to make sure you know the facts about all types of customs relief you may be eligible for to avoid paying duty unnecessarily.
‘A firm that knows how to navigate the administrative maze and has a customs plan ready for 29 March will be able to take steps to secure the softest possible landing in the event of a no-deal.’
Business need to ensure they are registered with HMRC for an Economic Operator Registration and Identification (EORI) number, the unique identification number which allows them to trade with the EU. They must check whether their goods require an export license and whether they will be subject to any special rules in respect of their movement.
Businesses need to consider how they will make their declarations to HMRC and whether this will be facilitated through a third party, such as a freight forwarder or a customs broker.
Another consideration is International Commercial Terms (INCOTERMS) or shipping terms agreed between contracted parties, ie, the supplier and purchaser, as they may determine the risk and liability for the movement of goods, including liability for any UK import duty.
Horner said: ‘If your supply chain is going to evolve and you will import direct into Europe, VAT registration in the country of importation may be necessary.
‘Another proactive measure to consider is implementing a customs duty suspension regime. These schemes require care and attention but the payback is well worth the effort and can prevent you paying double customs duty.
‘Being part of this regime marks out your business as proactive, compliant and forward thinking, important to future success. Comprehensive knowledge of customs arrangements and careful planning will likely prove the key to making the best of a no-deal Brexit.’
The 230-vote defeat is by far the largest ever suffered by a British government. Prior to this, the worst result was a 166 vote loss suffered by Prime Minister Ramsey MacDonald in 1924 over a government decision to drop criminal proceedings against John Ross Campbell, editor of the Communist newspaper Workers' Weekly.
Report by Pat Sweet