By Gareth Pritchard, partner
Gareth Pritchard, tax partner at Deloitte in Wales, looks at the impact of COVID-19 on how businesses are preparing for Brexit.
The recent economic and social impact of COVID-19 has illustrated the need for all companies to have resilient and agile business models. Scenario planning to focus on both risks and opportunities is key to remaining successful and building a robust platform for future growth as we head towards Brexit. It is vital that companies prepare a risk-based business plan to focus on building resilience.
Capitalising on changing market conditions with M&A
From 1 January 2021, in addition to ensuring they have the appropriate access to capital (debt and equity where appropriate), many companies will need to consider M&A as part of their broader strategy to capitalise on the changing market conditions. Examples may include acquisitions of new entities within the EU to provide a platform for further trading growth in the region, through to considering joint ventures with EU-based companies to provide continued access to the UK. Ultimately M&A can be seen as a tool to safeguard core markets and customers, through to transforming a business to effectively operate given the new market conditions.
Understanding indirect taxes
We have been supporting clients to understand the new UK Global Tariff, import/export procedures and the Northern Ireland Protocol, in addition to the changes that may be required to existing arrangements in the EU27. These include the requirements to have fiscal representatives in some EU Member States and the creation of an EU establishment if you are importing goods into the EU.
We can help clients understand the VAT changes that will come in both for importers of goods and for supplies being made to business customers and consumers within the EU27. This will also include changes to the use of call-off stock reliefs, triangulation and many other EU reliefs which will no longer be permitted for UK VAT registered businesses, and proposed changes to EU rules for supplies to end consumers, which may lead to the requirement to be VAT registered in another EU Member State.
A number of the changes will also impact how invoices are processed for VAT purposes. Therefore some system changes may be required to not only complete VAT returns and to comply with the UK’s Making Tax Digital regime, but also equivalent filing obligations throughout the EU27.
Know where the value is in your supply chain
COVID-19 has brought some of the issues arising from cross-border “just in time” supply chains to the forefront of peoples’ minds, highlighting the need for greater flexibility. Brexit and its deadline complicates these issues in order to manage the commercial and financial impact on supply chains.
It is important that groups understand where value is held in their current supply chain – particularly in intangible assets such as brands, customer lists, and goodwill – and where they want to get to.
Groups will then be able to understand:
- Whether a change to their supply chain will result in a shift in value from one jurisdiction to another, potentially giving rise to a taxable disposal, and whether there are other alternative ways of achieving the required commercial outcome in a tax efficient way;
- The ongoing tax implications of operating in a new jurisdiction or operating differently in an existing jurisdiction; and
- Whether transfer pricing policies will need to be re-visited to deal with the “new normal” where supply chains will need to be flexible in order to deal with the challenges of a COVID-19 world.
As of 1 January 2021, businesses need to consider new immigration requirements for travel into the EU, as well of course as the UK’s new immigration system. When combining the volatility of COVID-19 travel restrictions, the requirements of the EU Posted Workers Directive and the current unknown position with regard to social security (whilst future relationship negotiations continue), it is clear to see that employers will shortly have a complex job in managing employee mobility between the UK and EU.
There are however a number of readiness actions that could be taken now to smooth the transition into 2021, including:
- Gain an understanding of the new UK immigration system and the immigration requirements for UK employees who frequently travel to EU countries.
- Introduce or update pre-travel processes and controls. For COVID-19 restrictions our GoWork digital map provides up to date supporting information: https://gowork.ges.deloitte/
- Engage with UK workforce with regards to the EU Settlement Scheme, to enable EU/EEA/Swiss citizens already in the UK prior to 31 December 2020 to remain in the UK by ensuring awareness of the application deadline of 30 June 2021.
- Engage with UK employees working in the EU with regards to their immigration status and continued residence requirements.
- Consider the possible outcomes with regards to social security and, where dual liabilities and/or an impact on employee social security benefits may be in point, agree a policy position with regards to funding support.
How we can help
Over many years Deloitte has developed the expertise to support our clients to overcome some of their greatest challenges. Today, we’re proud to have Brexit teams across the UK, including in Bristol and Cardiff, to assist clients with their strategic business planning to build and maintain resilience as we all adapt to working in a new normal.
If you’d like to join one of our upcoming Brexit webinars or watch a recording of a past webinar, please visit this page on our main site.