Here's what would happen if the UK leaves the EU without a deal.
The British Parliament appears poised to reject Prime Minister Theresa May's negotiated Brexit deal when it votes on 15 January, and with the European Union refusing to consider an alternative, a no-deal Brexit is a real possibility.
38% of the business leaders that we surveyed suspect there will be no deal come 29 March 2019, while 85% believe they are equally or less prepared for Brexit than their competition. You can read more results here. How prepared is prepared? Worryingly, not very, based on the 77% of firms that told us they're continuing 'business as usual' until a final deal is known.
With both the UK and EU now making no-deal contingency plans, it's time for businesses to do the same. Here's a taste of what we can expect in the event of a 'hard Brexit'. If you need help preparing your operations, you can get in touch with our experts.
Goods will be subject to more red tape, additional costs
If no alternative trade and legal agreements are in place come Brexit day, the UK will be treated as a 'third country' by the EU and full border controls will be imposed on goods. This means large queues at Ports on both sides of the English Channel as checks are carried out, and delivery delays of as long as six months are forecast for some industries. Contingency traffic planning is being tested in the UK to deal with the expected backlog of trucks, while drug manufacturers and distributors are heeding the government's warnings to stockpile medicines. There are also calls for alternative supply routes between the UK and Europe to be opened up so that companies can appropriately plan.
The European Commission's 'no-deal contingency action plan' covers road freight coming from the UK, and would give hauliers a nine-month grace period where no permits would be needed.
On the tax side of things, if the UK cannot negotiate to remain in the customs union or in the EU VAT area under a no-deal scenario, firms may need to pay irrecoverable customs duties on goods imported into the UK. They may also need to pay VAT upfront on all goods imported from the EU, increasing overall costs.
The UK would also lose access to the EU 'one-stop-shop' mechanisms, and the foreign VAT reclaim procedures within the EU that use electronic portals would no longer be available. Various simplification measures would no longer apply, for example, the triangulation system, which would significantly increase the VAT burden. If you need help navigating the post-Brexit tax landscape, make an enquiry with our expert tax team.
End of free movement – impact on tourism, recruitment
Travel delays are expected in a hard Brexit scenario, as an additional 90 seconds of border checks are completed on each traveller at airports. The knock-on effect to businesses in the tourism industry is very real, as those in Europe can no longer necessarily rely on an annual influx of UK visitors, especially as the value of the pound weakens. To ensure 'basic connectivity,' The European Commission will allow UK flights into and over the EU to continue for 12 months.
The end of freedom of movement also affects company staffing and the availability of talent. The UK's post-Brexit immigration strategy is still being fleshed out, but we know that it will give settled status to the approximately 3.5 million EU nationals in Britain under the EU Settlement Scheme. In a no-deal scenario, there would be a stricter application cut-off date.
EU member states are making individual plans for how to handle UK nationals and they've been urged by the European Commission to be generous.
- The Netherlands says Brits will be able to stay, they'll just need to apply for a special permit during a 15-month transition period. Dutch employers will not need to apply for permits to keep their British staff.
- Belgium will refer to data in its National Register to identify UK nationals who will need to apply for a residence permit. Their rights as employees or self-employed persons in Belgium will be linked to this permit.
- In Malta, the British High Commissioner and Maltese government are hosting Town Hall meetings with UK nationals to discuss their rights, and provide clarity on their status in the country, post-Brexit.
- Italy says its British population will remain legal residents in the event of no deal.
- It will be compulsory for Brits in France to hold a Carte de Séjour (residence permit) after Brexit, and they're being urged to apply now. The French government has passed a parliamentary bill that will allow it to take emergency actions in a no-deal scenario, including actions to protect the rights of UK citizens living and working in the country. Like the Netherlands, France is expected to implement a transition period to provide more time for residence permit applications.
- Regardless of whether there is a deal, UK nationals in Germany will have three months from 29 March to register with the local authorities.
- Spain is planning to adopt measures to ensure Brits in the country retain their rights if there's no deal – as long as Spaniards in the UK are given the same treatment.
- EU citizens living and working in Northern Ireland will need to apply to stay after Brexit under the UK's EU Settlement Scheme.
There's a strong desire to avoid a 'hard' border between Northern Ireland and the Republic of Ireland due to the conflict that could result. But while no deal remains on the cards, police reinforcements are being trained and companies trading across the border can expect to face new obligations, at the very least with regard to customs. The Department of Business, Enterprise and Innovation has launched an online course to help bring Irish businesses up to speed.
Stability of financial services
Financial services firms have been preparing for a hard Brexit by moving staff and assets from the UK to Europe – Paris and Ireland being the most popular destinations. £800 billion in assets have reportedly been transferred. Meantime the European Commission's no-deal contingency planning includes the granting of 'temporary and conditional equivalence' to UK-based banks clearing houses for one year after Brexit. It does warn that financial services operators in the UK would lose the right to provide their services in the remaining EU member states under the EU financial services passports scheme.
Are you Brexit-ready?
Businesses that trade between the UK and Europe should be taking note of the no-deal forecasts for their industries, and making the necessary contingency plans.
We have consultancy experts that can help with Brexit planning assessments right across your operations.
How prepared is your competition for Brexit? Watch our on-demand webinar with Brexit Partners to find out.
Download your free Brexit Snapshot report.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.