Wednesday, 10 April 2019

Is your business prepared for Brexit?

By Bhavini Kalaria,

The 29th March 2019 has come and gone, and whilst Parliament has rejected the majority of options before it, and the main parties try and come to a resolution which can garner enough support to get through Parliament we await (presently) further confirmation on whether the UK will have another longer extension to Article 50, the mechanism by which the UK was to depart the European Union.

The end game for Brexit remains unclear.  The possible scenarios lie anywhere between a “no-deal” Brexit through to some kind of Norway-style deal where the UK will be a part of the European Economic Area.  In all cases, businesses trading with the EU, or employing staff from any of the EU 27 countries, in receipt of EU funding will want to take some immediate practical steps to be ready for Brexit (deal or no deal). 

If the UK was to have a transition period as envisaged under the Withdrawal Agreement, then largely the compliance culture will remain the same.  During the transition, the UK would be out of the EU, but not represented on EU bodies and would have the same obligations as another EU member.  It means remaining within the single market (that is allowing freedom of movement of goods, people, capital and services), customs union (applying the same tariffs).  No deal means leaving without an implementation period, and no agreement across a myriad of different areas and sectors – including trade, immigration, borders, and the European Court of Justice.

Practical Steps that Businesses should take to prepare for Brexit

Step 1: Comply with HMRC Guidance

These require businesses to:
(i)                  Register for a UK Economic Operator Registration and Identification (EORI) number.  Businesses will need this to be able to import or export goods with the EU in a no-deal scenario.  If your business trades in goods you must apply for the EORI now.  This requirement applies to VAT and non-VAT registered businesses.
(ii)                hire an agent to make import and/or export declarations.
(iii)              contact any organisation that moves goods to ensure that all safety and security declarations can be made
Step 2: Check your contracts where you are trading or doing business with businesses or individuals based in the EU.
Where the UK doesn’t negotiate an alignment of regulatory and health & safety standards, then your goods or services will not have the same recognition and status as they do currently. Additional regulatory steps can add costs and may make what is now a legal transfer of goods or services, into an illegal one.  In this situation, any commercial agreement may become economically unviable or illegal.
As a business you should look at your contracts to see whether there are any provisions which will help you to terminate the contract and re-negotiate should your business need to. You should consider whether there are any express provisions dealing with Brexit and what scenarios this covers, and if not whether your force majeure, frustration or material change clauses can be relied on.  You may want to consider whether the ability to bring the contract to an end exists too.
The likelihood that a contract can be brought to an end because it is uneconomic is limited and generally will not be a good enough reason to trigger a material advance change clause.
You should consider taking legal advice on your contract if you believe that there is a risk that your current contractual arrangements will be affected.

Step 3: Check your responsibilities as an employer of EU staff members
One of the key issues for the Brexit Referendum was immigration – and it is highly likely that the freedom of workers to move and stay here without applying for a visa will end. The UK has reached agreements with Norway, Iceland, Liechtenstein and Switzerland.  Outside of this we will need to await final details.
The Home Office has issued guidance to EU Citizens to apply for a visa under the EU Settlement Scheme. You will need to check whether your staff members have the right to stay and work in the UK after the Brexit deadline expires. 
If you are an employer you will need to consider whether you need to apply for a sponsorship licence to enable you to employ members of staff from the EU, and There is no guarantee that your business will be eligible to apply for a sponsorship licence and so taking early guidance and Brexit proofing your business now will be key.
Step 4: Check whether your regulator can provide licences and certificates which will be recognised by the EU
It is not clear at this stage whether UK regulatory agencies will be able to provide licenses and certificates that will be recognised by the EU for goods and services that are exported to the EU.  It all depends on whether reciprocal recognitions stays or goes.
In any event if your business holds licences to trade or work in the EU – you should look at the licencing requirements now and contact your relevant regulator so you can get the most up to date guidance you are able to.
Step 5: Check the impact on your group structure if you have an office in any of the EU27 country
Many companies benefitted from the recognition afforded to them under the existing regime to be able to set up and operate in any of the EU27 countries.  Freedom of establishment is something which will be affected without any express agreement and if your business operates an office outside of the UK you will need to consider your existing structure to see whether you will need to either get additional licences, re-incorporate or re-establish back in the UK.  This is especially relevant if you have members of staff and need to look at sponsoring them.
There are a myriad other issues which arise out of multiple locations, and you must seek advice on the where your business is rightly considered to be located and if there are follow on tax implications. There will also be an impact on current litigation, and the ease with which debt can be recovered.
The key issue is that without some sort of reciprocal treatment the future effectiveness of your group structure must be looked at and you should take immediate advice on the impact of Brexit before the Brexit deadline.
Step 6: Consider data protection
Even if we leave the EU, where a business is dealing with European Citizens, the data belonging to those citizens will have to be dealt with in compliance with the standards set by the General Data Protection Regulations.  By and large, the Data Protection Act 1998 works well, and compliance with this should mean that even as a third party country, the UK will meet the necessary standards required.  Nevertheless, if businesses have not considered how they are protecting data – it would be wise to do so now.
There are numerous other areas that businesses will need to consider and specific industries such as food, fishing, pharmaceutical, transport and finance will have specific rules which will apply.  All businesses are encourages to start preparing for any Brexit scenario by reviewing their current operations, contracts, people and licences.
Bhavini Kalaria is  a lawyer working at the London Law Practice. She prepared this briefing for the Federation of Small business and has kindly agreed to publish it as a guest blog, as many small businesses are unaware of the effects of Brexit on the their business. She is also a resident of the London Borough of Barnet. 

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