The freight industry must not delay its preparations for more customs checks and administration following the Government’s decision to ‘phase in’ the introduction of EU border controls from the start of next year.
Despite being widely welcomed as a ‘pragmatic’ approach, the decision to defer customs declarations and tariff payments by six months from the end of the Brexit transition period, still means that businesses should plan for a no-deal Brexit scenario.
The Government has confirmed that EU border controls will now be introduced in three phases from January next year. The main changes are that customs declarations and VAT / customs duty payments have been deferred by six months to the start of July 2021, and physical checks on vehicles entering the EU will increase in the same month. More detail on the border operating model to be introduced is expected to be published in the coming weeks.
While the industry has more time to adjust, which is extremely helpful following the pause in operations caused by Covid-19, hauliers and freight forwarders will need to review their operational and cash management plans closely. With new guidance now being published by the Border Delivery Group, HMRC and the Joint Customs Consultative Committee, plans should also be kept under review.
For operators that haven’t yet done so, it is important to consider how internal processes will need to adapt to meet the incoming requirements. A full operational impact assessment should be carried out to identify areas where additional resources, such as skilled labour, might be required and contracts will need to be reviewed, taking account of incoterms and whether goods will be supplied on, for example, ‘Ex-works’, ‘DDP’, or other terms, in order to identify where responsibility and risk lies within the supply chain.
To ensure the industry is ready to process an estimated additional 200 million customs declarations per annum, the Government’s funding scheme for customs intermediaries has been extended, with grants available for investment in training and technology. This support is designed to bolster the ranks of skilled officials available to support businesses trading with the EU after Brexit, reducing the risk of supply chain interruption.
As part of their preparations, hauliers and freight forwarders should also consider the impact of deferred duty payments and import VAT liabilities on their working capital cycle. Three-way cashflow forecasting, which involves integrating a company’s forecast profit and loss, balance sheet and cashflow, can help to ensure the business is in a position to meet the required payments in July 2021. When building this forecasting model, businesses will need to factor in any existing deferral facilities and have a sound understanding of the cost impact of new global tariffs, which will depend on the nature of any imported goods.
With so much to consider, it is clear that the industry has no time to waste in planning for the introduction of EU border controls. Whilst major players are likely to have plans in place, some SMEs may still be underprepared and this could leave them at a competitive disadvantage. For example, the Government’s proposed introduction of free ports could provide an excellent opportunity for some SMEs to relocate to these customs-free zones, but they need to be ready to adapt.
Sophie Said is a Director and Sean Turner is a VAT specialist, at accountancy firm, Menzies LLP. Both advise businesses in the transport and logistics sector.