Brexit myths and misconceptions
What are the big misconceptions that still persist around the Brexit process, and what business myths need to be busted? Baker Tilly’s tax experts sort the fact from fiction.
Despite years of blanket coverage of the Brexit machinations, Britain is just a few days away from the end of the transition period with no clarity — yet — as to whether it will leave on a deal.
And according to Baker Tilly trade experts in three of the countries most affected, that has left business confused about what the various scenarios could mean for their ability to trade after January 1.
MHA MacIntyre Hudson Tax Partner Alison Horner says she has been surprised at stories of businesses who have been lulled into inertia by the long-running negotiations, putting off preparation to the very last minute.
“We are still receiving phone calls from people saying, ‘can we talk to you about Brexit’ and that’s remarkable,” she says.
“What we have seen in the Netherlands is that some businesses have prepared but they have not prepared enough.”
– Marisa Hut
“There’s a lot of panic, a lot of unpreparedness.
“We can see that clients who have prepared are in a really good position. For the businesses that haven’t, I don’t quite know what to say.”
Those concerns are shared by two of Ms Horner’s Baker Tilly International colleagues, Marisa Hut, who is a Manager in VAT & Customs for Baker Tilly (Netherlands), and Angela Keery, a Corporate Tax and Family Business Specialist from Northern Ireland’s Baker Tilly Mooney Moore.
“What we have seen in the Netherlands is that some businesses have prepared but they have not prepared enough,” Ms Hut says.
“We are now helping them get ready and that’s what we will be doing every day until the transition ends.”
For Ms Keery, the challenges are slightly different.
Northern Ireland will trade with both Europe and Great Britain under a specific set of rules set out in the Northern Ireland protocol, agreed in October 2019 and confirmed this month by UK Cabinet Office Minister Michael Gove.
The rules will mean Northern Ireland can trade easily with Ireland, and thus the rest of EU, but can expect goods heading from Great Britain to be subject to greater checks. Without this, UK firms could continue to access European Single Market via NI and Ireland.
“I don’t think the updated NI Protocol policy paper really gives business much more clarity — it really just confirms what business expected,” Ms Keery says.
“But trade is so integrated here. We did surveys and 93% of businesses trade with Ireland the rest of EU, these businesses need to know how the process around importing goods from the UK will work, and that clarity isn’t yet there. The updated policy paper this week isnt bad news but it is not really good news yet either.”
So what are the big misconceptions that still stalk the Brexit process, and what business myths need to be busted?
Misconception 1: If there’s a deal, then it will be as if the UK is still part of the EU
Post January 1 for a UK business to trade into Europe or vice versa, they must have what is known as an Economic Operator Registration and Identification or EORI number. Ms Hut, who is working to ensure companies comply, says there is still a lingering belief that the rules that have governed trade for the past three decades will continue on if a deal between the UK and EU is signed.
“It is a real thing that people believe in — they don’t think they’re going to have to worry about the paperwork for exports and imports if there’s a deal.”
– Alison Horner
Although a deal would likely mean tariffs would not be applied to goods being imported and exported, it would be what is being called a ‘thin deal’ at best. That might put Britain on roughly the same standing as Canada, although with added benefits that appear unlikely to secure EU approval.
Even before the UK exited the EU, back when the UK Prime Minister was still calling the deal oven-ready, there was no suggestion that the UK would agree to something during the transition period that would see a seamless departure under near-equal terms.
“We have seen that some businesses think that if there is a deal that the UK will still be an EU country — that’s the biggest dream they have,” says Ms Hut.
“But that is not true. We already know that, of course, the UK is a non-EU country, deal or no deal.”
Ms Horner has heard similar thinking in the UK.
“It is a real thing that people believe in — they don’t think they’re going to have to worry about the paperwork for exports and imports if there’s a deal,” she says.
“But it’s all about the paperwork.”
Misconception 2: If there’s a deal, trade will be able to continue as before
The first myth leads neatly to the second big misconception, that resolving tariffs through a deal would remove the red tape burden about to land on businesses both in Britain and on the continent.
As Baker Tilly experts have discussed previously, the steps needed to transit goods after Brexit introduce layers of complexity that are absent under the previous EU membership arrangements, from the need to complete customs declarations, to the possibility of paying import VAT, to the use of multiple new computer systems, some of which have not yet been released.
But there is also a looming change that comes with the end of the UK’s protection under the EU eCommerce Directive, which presently allows online businesses to be bound only by those laws that are in place in the country in which the business operates.
As the UK is the third biggest online marketplace in the world, big ecommerce hitters like Shopify are warning businesses to prepare for that change, and determine what additional rules they must observe.
At the same time, European businesses that sell online to the UK will also need to register for UK VAT, with the end of low-value consignment relief for goods.
“Because the UK is not part of the European Union, businesses must get their EORI numbers, they will need a VAT registration, and there is also another important change which is the UK’s ecommerce changes that also are implemented from January,” says Ms Hut.
“There’s not been a lot of attention paid to that but EU web shops must register for VAT in the UK as of January 1.”
Misconception 3: Trade with Nth Ireland from Great Britain will be no different
The third misconception has begun to hit home for both Northern Ireland and Great Britain, with the gradual realisation that goods heading from England, Scotland or Wales for Northern Ireland are likely to face checks in the Irish Sea.
“I think Great Britain businesses in particular have not picked up on the different trading conditions with Northern Ireland, and even here many businesses are not as aware as they should be.”
– Angela Keery
“Businesses just do not yet understand the implications,” says Baker Tilly Mooney Moore’s Angela Keery.
“I think Great Britain businesses in particular have not picked up on the different trading conditions with Northern Ireland, and even here many businesses are not as aware as they should be.
“But although we have had the new policy update, there’s still very little detail.”
Under the policy update, a ‘trusted trader’ scheme has been developed that should mean tariff exemptions for nearly all goods traded between Great Britain and Northern Ireland, while also giving a three-month exemption for agri-food goods before they need to get export health certificates. This last point is designed to address growing concerns by supermarkets over transporting food.
“Whilst trusted trader status has been announced, we are lacking detail in terms of what you need to do to qualify, how you go about that?” Ms Keery says.
“What are the next practical steps businesses need to take? We’re still in the dark.”
Misconception 4: There’s a chance that Brexit won’t actually happen
Ms Keery says that after the protracted discussions about what Brexit might mean, now spanning the best part of a decade, there are still some who refuse to believe that Britain will actually exit the UK.
That’s despite Brexit already taking place — 2020 has merely been the 11-month transition that has followed the UK’s exit from the EU at 11pm on January 31.
Various extensions and the ongoing deal-or-no-deal debate have created a false sense that the coming change might not be as significant as forecast, or might again be pushed off.
“What I often get is ‘it just won’t happen — we just won’t leave’,” Ms Keery says.
“That comes up all the time. We can just change our minds. But no, we’ve left, and this is a conversation I have again and again.”
Misconception 5: It’s too late to start to prepare
While the days tick by to January 1, and (at least at time of writing) no deal has been struck, Baker Tilly’s experts say the window of opportunity to prepare is rapidly closing.
For those businesses only now thinking about warehouse space, or finding a customs agent to assist with new paperwork, there is little chance of success between now at the date of exit.
“If you don’t have an EORI number as a UK business, you just can’t get anything in. It just stops.”
– Marisa Hut
But it is not too late to take at least some steps that can prepare your business for the new world.
Ms Horner says businesses who haven’t prepared will need to accept they might not be ready for January 1, but put plans in place for getting up to speed as fast as possible.
“They need to act quickly,” she says.
“They will not be ready Day 1 but they should have a contingency plan for Month 1 and 2, whilst they get things in place.”
Ms Hut says that from the perspective of the Netherlands, December 31 is a hard deadline for British businesses if they don’t have an EORI number.
“If you don’t have an EORI number as a UK business, you just can’t get anything in. It just stops,” she says.
“So I expect a lot of calls as of (Monday) January 4 at the border, saying ‘we need an EORI’. We can do that — it will be arranged in a couple of days — but you need it or your goods just don’t get into the country.
“It’s the same for the UK, and it’s the same for Ireland. If you do not meet those conditions, the goods will not flow.”
Both the UK and Netherlands offices are flat out issuing numbers for businesses, Ms Horner says, but it is also important that they ensure they are prepared for differences in VAT.
“People have started to understand the EORI issue, and they now focused on customs duty, which would be resolved by a deal, but it’s not just about customs duty, it’s also about VAT,” Ms Horner says.
“Your customs duty might be 5%, but if you get your VAT wrong, it’s a 20% loss and you can’t make that up in your profit margin.”
Ms Hut agrees.
“Deal or no deal, businesses must prepare — they must,” she says.
“The UK is now a non-EU country. Nothing will change about that. So get your EORI numbers and get your VAT registration and get it now.”