Brexit Impact on Business – A Costing View

We’re now through Q1 2021 – the Brexit transition period is well and truly over and we’re starting to actually see the Brexit impact on business. Now, you’re saying “hold up” – this is nothing to do with leaving corporate… and you’re correct in that. But here’s the thing – I’m about to reveal my true self, who has a lot of say on both Product Costing and the Import / Export challenges of Brexit!

Brexit Impact on Business graphic

Introducing Lisa…

Hi – I’m Lisa Tidswell. And since I’ve fled corporate life, I’ve founded Confident Costing a cost consultancy and training program for small and medium sized manufacturers under the banner of Cam Corporate Ltd.

Despite almost a decade working in the manufacturing industry, I was a complete costing novice when I was pinched from Material Planning and Logistics to work in Finance Controlling and Product Costing. Over the subsequent 4 years, I learned A LOT about the linkages between costing and profit in competitive industries – and costed projects (and the business won contracts for) worth a total in excess of a mind-blowing 1,000,000,000 Euros!

In this time, I was completing an MBA, training shop floor operators as costing assistants, defining costing processes for the Western European region, traveling globally to work on projects, and even being parachuted into other plants as an internal consultant. While all this was going on I was always conscious that the tools and resources available to big business just aren’t accessible to the small and medium-size businesses that NEED them too (let’s face it – you can’t afford another person dedicated solely to costing, and you don’t need to!). So I decided to change that by teaching my SIMPLE 9 step system to team-based product costing.

Supply Chain Help

Now – did you see the piece about Material Planning and Logistics? That supply chain element of work has been following me around for most of my career (you can see a bit of the detail on LinkedIn if you’re that intrigued). As part of this, I seem to have become the go-to on import / export compliance through multiple businesses, meaning I was the one who ALWAYS ended up talking to HMRC, putting in processes and liaising with clearing agents over imports/export and any identified errors!

This is NOT something that I advertise, I consider it to be a stealth hat – but all of a sudden, clients “in the know” started asking for help with navigating the Brexit impact on their businesses. And in helping them, it appears I’ve all of a sudden gained an awful lot of knowledge on the mechanics of satisfying the EU / UK Trade Agreement.

And if you’d like to take advantage of it for free – download the Brexit Triage Checklist:

So, if you don’t have time to go through the full EU – UK Trade and Cooperation Agreement in all of its 1276 pages to pull out the bits that are applicable to import and export for your business – it’s time that I removed the “stealth” from my import / export and Brexit hat.

What was all this about Percy Pigs?

If you’re a fan of the M&S gummy sweeties, you may have clocked the news article on the 15th of January, on how the rules of origin inherent in the trade agreement were causing a headache for the M&S supply chain team. While Rules of Origin are a regular feature in trade agreements globally, they’re actually not that common in European agreements – and with that comes one of the biggest challenges (and administrative expenses) in the change from the free movement of goods to a preferential trade agreement.

The challenge for M&S is that the sweeties are manufactured in Europe – Germany according to the new article, then travel to the UK from where they are distributed to the various M&S shops including those located in Ireland. This was seamless under the free movement of goods, but now there are two different arrangements that must be catered for – getting the goods to the shops in Ireland (which now means exporting them back to the EU), and getting the goods to Northern Ireland.

What does the UK / EU trade Preferential Trade Agreement mean for me

The World Trade Organisation definition of Preferential Trade Agreements is below:

Preferential trade arrangements (PTAs) in the WTO are unilateral trade preferences. They include Generalized System of Preferences schemes (under which developed countries grant preferential tariffs to imports from developing countries), as well as other non-reciprocal preferential schemes granted a waiver by the General Council. Information on PTAs notified to the WTO is available in the PTA Database.

https://www.wto.org/english/tratop_e/region_e/rta_pta_e.htm

But what you really mean, I imagine – is what impact does it have on me. And these impacts extend beyond the Trade implications to include elements such as:

  • You might need to appoint a VAT fiscal representative in every EU country that you do business
  • Consideration of VAT collection and compliance rules in EU countries
  • Business travel – some work activities are specifically included in the agreement, but others may require a Visa for each country that you or your team are working in, make sure you check!
  • Goods movements and Customs duty – additional documentation or checking requirements for certain categories of goods (including but not limited to plant and animal products). Border controls, import and export processing, and duty on goods that do not qualify for a preferential duty rate.
  • Labelling and compliance changes as the previously aligned standards start to diverge

Qualifying for Preferential Duty Rates – or What are Rules of Origin?

You may have started to see statements like this one on the commercial documents that you’re receiving from your suppliers:

EU origin statement

But do you know what they mean?

As part of the EU – UK Preferential Trade agreement, the duty free trade doesn’t apply to all the goods crossing the borders (and if you think about it, why would it?). The UK has now defined different duty rates to the EU, which means that if all goods crossing the border were eligible for duty free trade there would be people who tried to circumvent the EU import duties by diverting goods through the UK.

To qualify for duty free trade there are a number of specific tests (that depend on the commodity code of the goods that you’re importing), that need to be satisfied.

In general:

  • If your product is made with any material that does not qualify as originating with the EU or the UK – there are specific rules defined by the commodity code of the product that you are selling
  • The production or manufacturing activity needs to happen in the EU or the UK and has to be more than a simple operation (one that can be performed without special skills or equipment)
  • If you have component goods that have a UK / EU originating status and some that don’t you need to have a way of separating or distinguishing between them in storage

Conveniently, that statement above – that’s proof from your supplier that you can use as evidence to support the origin of your manufactured goods, so make sure you keep them in a safe and easy to access way.

But one final nuance to be aware of… goods maintain preferential status for 1 pass through customs authorities, unless you use some form of special procedures. This is the problem encountered by the M&S gummy sweets. Once they’ve come from Europe to the UK, they can’t go back to Europe without attracting import duty unless a manufacturing process entailing more than a minimal operations are performed.

Just Importing – thanks!

But are you?

Are you Sure?

You might think that you’re just importing and the rules of origin don’t have much impact on your business; however, if anything that you sell is used in a further manufacturing process (and the final product is then sent to Europe), you won’t find your business off the hook.

Just think of it this way – if your business makes a tier 2 automotive component, as an example let’s say something like the internal structure of a seat. Once it leaves your factory, it then goes to the tier 1 supplier to be incorporated into their seat. From there it going to a UK car plant, where it is installed in the car which is later exported to Europe.

Tier 2 supplier flow

The UK car plant will definitely want to claim the preferential rate of duty on its export of the finished vehicle – and to do so it will need to prove that it is compliant with the trade agreement’s rule of origin requirements. Prepare yourself for being asked to define the origin of your goods too!

And the Practical Implications?

Lots of admin… and its associated costs.

You’ll need to have robust controls in place around your imports, exports and information storage. These will form the basis of the evidence to back up your statements of origin.

Make sure you’re sorted out on the VAT and business travel front. Don’t forget to check that the standards that you are working to are still valid – as previously common EU and UK requirements (including labelling standards) may have started to deviate.

Where to get help

Check out how well you’re doing with the Brexit Triage Checklist, or go straight to arranging a chat.

And until the 30th of June 2021 (or the money runs out) the UK government has grants available to support small and medium-sized businesses new to importing or exporting with training and consultancy.

7 thoughts on “Brexit Impact on Business – A Costing View”

  1. Hi Lisa,

    This is a very important, interesting and informative article. I’m not going to tell you what I voted in the Brexit referendum :), but I am concerned. The extra things we need to do like hire a VAT person in all the different countries that we trade in and the extra documentation etc. This all sounds like a headache to me, and will definitely bring in extra costs to people’s businesses, especially smaller businesses who rely on trading in Europe.

    I saw James Dyson on the news this morning saying he was all for Brexit because it gives him the freedom to do what he wants in Europe. Yes, it is ok for him because he has a huge business that operates all over the world. But there are so many smaller businesses who don’t and won’t see this as freedoms.

    In my opinion, what I am reading doesn’t sound great and what I am seeing on the news doesn’t sound great either.

    Thank you for sharing and enlightening me. Keep up the great work.

    All the best,

    Tom

    1. Hi Tom,

      Quite right too – your vote is no one else’s business! And as the UK leaving the EU was a negotiated deal (after the fact), no one could really know the true impact prior to the completion of the negotiation.

      Big industry is an interesting case, and freedom to operate within Europe I’m not convinced is strictly true. Although it would be much easier wielding huge economic power! Small and medium-sized businesses are the ones bearing the brunt of the deal – with the huge increase in administrative obligations. At the moment, there isn’t really any software in the market that I’ve found to facilitate the record-keeping or calculation of origin requirements (so much so that one of my larger clients is writing a bespoke bolt-on to their system inhouse).

      For any businesses looking for a bit of clarity on how they’re doing with import / export – test yourself with the Brexit Triage Checklist.

      Cheers, Lisa

  2. Hey Lisa, thanks for sharing this comprehensive and highly informative post about Brexit impact on businesses. I’m still in a grey area when it comes to all the changes that are coming from Brexit, but I’m glad to find your post here. I’ll definitely read this a few times as there is a lot of information that is new to me. Thanks again for sharing and keep up the good work with your site here!

    1. Hi Ivan,

      You’re not alone in the grey area. And just to make it more confusing, the changes haven’t finished coming with more to be phased in over the next 8 months.

      Cheers, Lisa

  3. Lisa,

    Post-Brexit know-how seems challenging to understand at the onset. That’s why I appreciate your article and the purpose behind your business. What do you think is the greatest impact on small/medium-sized businesses after Brexit. One issue you highlight is that there are tons of trade regulations that people have to consider now. Honestly, I’ll have to study Brexit a little more to understand this. However, I’m grateful I ran across your article. Thanks!

    1. Hi Robert,

      You’ve nailed it exactly – and once the challenge of understanding has been conquered, the further challenge becomes implementing the administrative and compliance sides. Fortunately, there are people who can help (and government grants from small and medium businesses that are new to importing or exporting).

      Cheers, Lisa

  4. Hi Lisa,

    This is a GREAT POST!
    Thanks for sharing this comprehensive and highly informative post about Brexit impact on businesses.

    One issue you highlight is that there are tons of trade regulations that people have to consider now. This all sounds like a headache to me, and will definitely bring in extra costs to people’s businesses, especially smaller businesses who rely on trading in Europe.

    I’ll definitely read this a few times as there is a lot of information that is new to me. Thank you so much for this informative and crisp knowledge.

    Thank you for sharing and enlightening me. Keep up the great work.

    Cheers!

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