Brexit contingency planning gathers pace

Dec 03, 2018
The sooner the future trade agreement becomes clear, the sooner businesses can begin to adapt to the new reality.
Uncertainty continues to cause problems for businesses across the island of Ireland as the end of the year approaches. Within Northern Ireland’s small- and medium-sized enterprise (SME) community, there is frustration that a lack of political leadership has left businesses in a vacuum. As Institute President Feargal McCormack said at an IAASA Brexit event in October, it is disappointing that there is no functioning Northern Ireland Executive to put forward a collective and cohesive perspective on behalf of the people of Northern Ireland.

Across the island of Ireland, businesses face complex and far-reaching issues from supply chains, employment and access to labour to certifications in markets, health and safety, insurance, tax, legal structures, duties and the additional administrative costs of doing business. In the Republic of Ireland’s agriculture sector, clients anticipate World Trade Organisation tariffs of up to 25% on ingredients imported from the United Kingdom (UK) with similar tariffs imposed on produce exported to the UK. Farmers are seeking alternative suppliers to mitigate this impact with some setting up in dual jurisdictions and/or forming strategic alliances.

Uncertainty reigns

In a meeting with the House of Commons’ Exiting the European Union Committee in October, Declan Billington, Chair of the Northern Ireland Food & Drink Association, said the viability of the dairy sector is being brought into question and that Northern Ireland’s sheep farmers are wondering whether to breed for the coming year as 40% of their livestock is exported to the Republic of Ireland. “If we’re cut off from the European Union (EU) market that is being serviced from Northern Ireland, the UK market does not have the demand for the products so prices will crash,” Mr Billington said.
Aside from the agribusiness sectors, it isn’t necessarily the amount of customs duties to be reintroduced that will pose problems for businesses north and south; it is the disruption that will result from customs checking at the border and the subsequent increase in administration.

I see no hard evidence that businesses should prepare for anything other than the reintroduction of tariffs and quotas on imports and exports between the UK and the EU. This, in turn, means tariffs and quotas on cross-border imports and exports. A difficulty facing most owner-managed businesses is that they do not have the resources to hire customs agents. Feargal highlighted this at the recent IAASA event when he said: “We will need people to deal with the additional customs clearance requirements and organisations, and to advise businesses on what their new obligations are. We also need people who can advise and help implement the plans which are needed to avoid disruption of supply chains, who can assist in business restructuring, in currency hedging, and even help in the relocation of people and facilities if and where that is required.”

Contingency planning

In preparing for border checks between Ireland and Great Britain, Northern Ireland firms are ahead of their UK counterparts according to a recent British Chamber of Commerce (BCC) survey. The research found that only 37% of BCC members in the UK who trade with Ireland are preparing for possible changes at the border or checks between the island of Ireland and Great Britain compared to 59% of firms in Northern Ireland. These findings mirror PKF-FPM’s experience. In the last three months, we have seen a significant increase in businesses actively preparing contingency plans. Many clients are getting ready for a ‘no deal’ outcome and availing of the InterTradeIreland voucher for €2,250/£2,000 to obtain professional advice. Funding support for Brexit preparations is also available from Enterprise Ireland, whose Brexit grant of €5,000 is 50% funded for Enterprise Ireland clients. In addition, the Strategic Banking Corporation of Ireland has a Brexit loan scheme for Republic of Ireland businesses.

Clients who have prepared a Brexit report find that this supports customer retention. It affords comfort by quantifying the potential impacts and demonstrates that plans are in place to mitigate them. Another positive is that companies engaging in the planning process are picking up new opportunities from businesses looking to onshore their supply chain. 

Firms on both sides of the border are looking at two site locations, either through joint ventures or by acquiring sites where set-up costs are not prohibitive. Similarly, the Chief Executive of Manufacturing Ireland recently told the House of Commons Committee about one Manufacturing NI member who purchased a site in Co. Mayo for £500,000 and another who has bought five acres of land in Co. Donegal.

Brexit guidance

Meanwhile, the EU continues to issue “preparedness notices” describing the consequences of the withdrawal without a formal, ratified agreement. These notices cover many different business sectors. Two that are particularly relevant for Chartered Accountants are a notice issued earlier this year on statutory audit and, more recently, a notice on EU VAT rules issued on 11 September 2018.

For Ireland and the UK in particular, if reciprocal audit rights are not in place between the EU and the UK, then members of the profession who could freely practice throughout Ireland and the UK – and across the island of Ireland in particular – may now find that considerably more difficult after Brexit. It will be important that the UK regulatory system is regarded as equivalent to the EU regulatory environment.
On VAT, the UK has said that in the event of a no-deal Brexit it will introduce the postponed method of accounting, which will mean that VAT will not arise immediately on imports. Chartered Accountants Ireland has asked the Irish Government to implement the same measure regardless of whether there is a deal or not, as VAT will be a new immediate cost for traders who import from the UK.

Guidance documents are also being published in the Brexit area of the UK Government website. The HMRC partnership pack, for example, provides guidance on preparing for a ‘no deal’ outcome with a promise of more detailed guidance to follow. In advice for Northern Ireland’s businesses, HMRC states: “We would recommend that, if you trade across the land border, you should also consider any advice issued by the Irish Government about preparations you need to make, in addition to the guidance set out by the UK Government.”

Elsewhere, customs guidance has been published by Chartered Accountants Ireland in Taking the Lead – Chartered Accountants and Brexit, which provides easy-to-follow commentary on how the EU customs system works. Many traders in Ireland and the UK will be dealing with these customs for the first time and for them, this information is critical.

At the time of writing, it remains to be seen whether the proposed ‘deal’ between the EU and UK – which covers Britain’s financial settlement with the EU, post-Brexit rights of EU citizens in the UK and British citizens on the continent, and a mechanism to prevent a hard border on the island of Ireland – will be finalised by the EU Council and whether Prime Minister Theresa May will be able to get it through the House of Commons. So, the uncertainty continues. The sooner we know the likely form of future trade agreements between the UK and the EU, the better we can prepare businesses in both Northern Ireland and the Republic of Ireland for the changeover and whatever new challenges and opportunities it may bring.

Michael Farrell FCA is Director at PKF-FPM Accountants Ltd., a service provider for InterTradeIreland’s Brexit Advisory Service.

Key dates in the Brexit timeline

25 November 2018
Potential European Council meeting to finalise the Withdrawal Agreement.

13–14 December 2018
European Council meeting. This may be the last opportunity for an Article 50 divorce deal to be signed off by Britain and the EU.

21 January 2019
Cut-off date for a deal to be presented to Parliament.

January/February 2019
Date by which the House of Commons must approve any deal agreed with Brussels. A Withdrawal Bill setting out the terms of Brexit must then be put forward.

21–22 March 2019
European Council meeting.

Up to 29 March 2019
Timeframe within which any Brexit deal must be approved by the European Parliament.

29 March 2019
Brexit Day.

After 30 March 2019
Trade talks and transition begin.

31 December 2020
Transition period ends unless extended.

31 December 2021
UK wants any “temporary customs arrangements” introduced as part of the backstop to end by this date. However, the EU says there should not be a time limit on
the backstop.