By Rizal Ahmed, Chief Content Officer, SAPinsider
With end of the Brexit transition period imminent, thousands of businesses now are facing the imposition of new VAT, customs, and tariff obligations. What do you need to know to prepare?
Preparing for Brexit
The departure of the United Kingdom from the European Union carries with it many unknown implications that global businesses must prepare for if they want to avoid costly penalties, delayed shipments, or extra fines and taxes.
To better understand the potential impact on companies and their current business and tax systems, SAPinsider sat down with Richard Asquith, the VP of Global Indirect Tax at Avalara.
Understanding the Areas of Impact
One of the challenges of preparing for Brexit is that not all the details and regulations have been fully finalized as negotiations between the EU and the UK continue. “We are in a waiting room of sorts. There has been a lot of disagreement. Divorce is much harder than marriage, and that is true in this case,” characterises Asquith.
But companies must progress in their preparation despite the uncertainty or face significant business impacts, warns Asquith. A wide swath of companies is potentially impacted by the legislation and in a number of ways. This includes companies who sell or ship goods and services in and out of the UK as well as EU citizens who work inside the United Kingdom, and those UK citizens who currently work for EU companies. Asquith notes that approximately 60% of multinational and North American organisations who do business in Europe have established their regional headquarters in the UK and those companies will need to prepare accordingly.
The challenge for many customers is dividing their efforts between the known and unknown. There is more clarity around the changes associated with goods movement, says Asquith. He reports that there are three major issues to focus on:
- Customs declarations. “For the first time five hundred thousand businesses will have to fill out specific customs declaration forms. Very few people are fully trained on how to do this properly,” reports Asquith
- New tariffs. Goods moving in and out of the UK will now face a new set of duties and tariffs that never existed before. Companies will have to estimate, and ensure payments or face penalties, fines, and shipment delays
- New VAT implications. According to Asquith, currently, goods that move in and out of the UK face a zero-rated value added tax (VAT). Now companies will have to figure out how to pay VAT based on the specific countries they are doing business with. “This has significant implications for your existing business applications. You must make sure your purchasing and business systems have been adapted and that you are charging the right VAT at various points of your business cycles and know the right rates for the right countries. The list is interminable. If your ERP is not keeping up, you’ll be in trouble,” says Asquith
What are less known are the impacts on employees’ services and data privacy. The final details governing these factors is still in the process of being worked out. Questions abound related to work travel, hiring, and contracting among other Issues. For Instance, if employees travel between the EU and Great Britain for work there may be visa requirements. Companies also must consider transportation and freight. How will truck and ferry drivers be treated?
Data privacy and exchange poses another interesting and potentially complex factor. The EU follows strict GDPR guidelines that govern the storing and sharing of customer Information. Will the UK continue to embrace GDPR or follow their own standards, and what will that mean for moving Important Information between organisations?
Where Are Most Organizations With their Brexit Preparation?
Companies are spread across a wide spectrum when it comes to Brexit readiness, reports Asquith. “25% of businesses are fully prepared. 50% are gearing up, and 25% have their proverbial head in the sand, hoping for a delay,” he says and goes on to warn this group that the likelihood of another delay is quite almost non-existent.
It can also be tough to figure out who has what responsibility when It comes to compliance with the new regulations. Asquith says you need to understand who Is the Importer of record and will have to worry about the paperwork, tariff, and VAT calculations and payments. “Typically, it’s the stronger counterparty, like a big retailer who’s importing goods from various countries. They are putting the resources behind the preparation, while the smaller companies are less equipped,” says Asquith.
What Does This Mean for SAPinsiders?
That doesn’t mean these organisations don’t have any responsibilities. You still must educate yourself and prepare. Asquith suggests a few key steps as you navigate your Brexit plan and advises that you seek a wide range of expertise to support you along the way.
- Obtain the services of a customs agent who can ensure that your paperwork Is set up and done correctly. They can also make sure that you are covered when it comes to any new import VAT. They can also help with tax and tariff audits and interaction with governmental agencies
- Understand the potential risks across your supply chain: “Make sure everyone within the organisation understand the impact and is looking for potential risk. You can’t just think of your business. You need to know what your suppliers are doing and whether they are compliant. Otherwise your business will get disrupted with goods getting blocked at the borders,” warns Asquith.
- Walk intelligently into new business partnerships and examine the potential cost impacts on current contracts. Asquith advises that companies do not sign any new contracts without understanding the potential impacts of tax and VAT. Additionally, you should look at current contracts that can be impacted. Extra duties or taxes may dilute margins without you knowing it. “You may be stuck with taxes you have not anticipated,” says Asquith.
- Prepare to adjust your core ERP and business systems: Asquith reports that SAP like all other vendors are in preparation mode and will be making changes to the way taxes are treated in transactions. But this only solves part of the problem. You may have to create new tax codes and reports that monitor and ensure compliance.
- Take the time to investigate and hire a solid set of partners: Depending on what area of the project you need support for there are a number of partners that can help with assessment preparation, reporting and modifying your systems for Brexit. According to Asquith, an organisation like Avalara can support your project in a number of ways including automating tariff calculations, and guiding businesses in their foreign VAT registrations. For instance, Avalara can provide live tariff calculations before checkout on an ecommerce transaction. He also suggests hiring customs agent or freight forwarder. “These resources are imperative in helping you understand the import VAT, how to work with tax authorities, and make sure that your paperwork is ready so that your goods will make it through the border,” says Asquith.
- Establish a strong, internal cross functional team to guide your Brexit project: There are so many different potential impacts of Brexit, that you need to gather expertise from across your organisation to be successful. Finance, Tax, IT, Legal, Procurement, and the supply chain teams must all contribute and be up to speed on how their area of the business needs to operate to ensure success.
Avalara has assembled a host of resources to help organizations understand and prepare for Brexit.
- Virtual session on Brexit Preparation led by Richard Asquith at the upcoming SAPinsider EMEA virtual event. https://bit.ly/2JCA6Tx
- Avalara’s Brexit survival guide and Brexit 10-point ecommerce checklist
Avalara helps businesses of all sizes get tax compliance right. In partnership with leading ERP, accounting, eCommerce and other financial management system providers, Avalara delivers cloud-based compliance solutions for various transactional taxes, including sales and use, VAT, GST, excise, communications, lodging, and other indirect tax types. Headquartered in Seattle, Avalara has offices across the U.S. and around the world in Canada, the U.K., Belgium, Brazil, and India. More information at avalara.com.