You’d be forgiven for cursing when you hear the word ‘Brexit’. Once the UK made the decision to leave the EU in 2016, preparations and negotiations to exit began. In late 2019, the final date for completing the UK’s exit was set as 31st December 2020.
Brexit consistently dominated the news until a global threat emerged, the Covid-19 pandemic. After over six months of varying degrees of lockdown, it feels like Brexit has crept up on us with only three months to go. With many companies barely keeping their heads above water during the dark days of the pandemic, little or no preparation has been done for Brexit.
To be well-prepared for Brexit, it is important to identify its impact on your organisation. This can be challenging because the results of the negotiations are still up in the air. However, we believe Brexit is sure to have effects on several business areas. In this blog we’re covering the elements you need to think about as we approach the looming deadline…
Disruption of the supply chain
Research by the UK Border Force stated that up to 87% of cross-Channel freight could be stopped in the event of a no-deal Brexit, with at least three-quarters of trade between Dover and Calais grinding to a halt for up to six months (should the UK leave the EU without an agreement in place). This is bad news for UK manufacturers as it means that the supply of raw materials and components may be severely affected.
Many manufacturers are starting to stockpile the items they need in case they come up against disruptions in their supply chain. The downside of this is that it increases the risk of waste which may put extra strain on firms that are already under pressure from the effects of Covid-19.
The impact of Brexit on regulation is potentially enormous. In many areas, the UK largely works to European-wide standards and it is likely that UK regulation will continue to comply with those standards (but with no ability to shape the policy behind them).
‘Rules of Origin’ criteria
HM Revenue and Customs define the ‘Rules of Origin’ as “rules to establish the country of origin of imported and exported goods and to help identify those which qualify for lower or nil customs duty”.
At the moment, the EU doesn’t enforce rules of origin for trade within the EU, but if we exit the EU without a Withdrawal Agreement then it is likely that any business which continues to export goods into the EU will have to prove the origin of every component of their product. This could be quite a complicated process if your product contains many different components all of which are manufactured in separate countries.
One way to ease this process is to start to use software which allows for full traceability and visibility, and that can handle the complex data that will be gathered as part of this. What we can say with certainty is that having a robust and up-to-date ERP system will set you in good stead to be able to maintain and even potentially increase your business performance – whatever happens.
It's crucial for importers and exporters to understand the potential customs implications for their businesses. A July 2020 survey commissioned by Descartes indicates that UK businesses are largely ill-prepared for the customs complexity post-Brexit. Government figures suggest that British companies trading with Europe will have to fill in an extra 215 million customs declarations a year post Brexit – with a potential cost to businesses of around £7bn a year. Companies need to take action now, or potentially risk supply chain disruption at a level far greater than that experienced during the onset of Covid-19.
ERP configuration considerations
Inevitably your ERP system will need updating to reflect the changes. These are the areas we will be focusing on to ensure our clients are up and running speedily post-Brexit.
- Since the UK will no longer be part of the European Union, companies will need to analyse and adapt their data. Currently, any company code that is created with ‘GB’ as the country qualifier is a company code within the European Union. The same goes for business partners such as vendors, banks and customers located in the UK. The entire tax determination mechanism will require a fix.
- The EU and UK are expected to implement some tariffs on goods and these need to be reflected in your system.
- It’s expected new VAT codes will be required on foreign transactions. VAT codes for EU-to EU trade should be deactivated.
- Once the legal specifications of the new trade model are clear, conditions for the information required on government reports are bound to change.
- Intrastat or EU sales without VAT should no longer be reported, from UK-based entities.
- Trade from the EU to the UK will be perceived as exports and must be reported to customs and tax in a similar manner.
- By leaving the EU, the UK is also leaving the European single market. This will inevitably have an impact on current trade flows. Additional costs such as customs fees need to be considered. Customs declarations and clearance will also increase lead times and dramatically increase administration as we discuss earlier in this article. Specifically, your company must be able to manage customs declarations, handling of EORI number, and create user accounts for the electronic customs settlement system if you do not already have this.
- The information on system forms and documents will need to be updated. Ensure you review terms and conditions, purchase orders, invoices and any other documentation.
For existing APH clients, rest assured
For APH clients, SAP has published a roadmap for Brexit transition including a migration tool to convert existing UK and Ireland databases to the new UK (post-Brexit) version. These Brexit features are being delivered with patch 3 of the new Release 10 of SAP Business One. Release 10 supersedes version 9.3 which is now out of mainstream maintenance with the last patch released June 2020. So, for you to be ready post-Brexit then you need to be upgrading to Release 10 as soon as possible.
Do you need help with getting your company ready for Brexit?
APH can help you prepare your SAP Business One system for Brexit and we can also help you determine any areas of weakness within your systems with our APH Brexit Readiness Assessment. Sign up here and we’ll be in touch to book a date in a consultant-led engagement.