After 1,317 days, three prime ministers, two missed exit dates, dozens of votes in Parliament and years of dramatic negotiation, Britain will finally be leaving the European Union today.
“This is the moment when the dawn breaks and the curtain goes up on a new act,” says Prime Minister Boris Johnson in a prerecorded speech scheduled for broadcast this evening. “It is a moment of real national renewal and change.”
There won’t be much of an immediate impact on Friday, aside from British European Members of Parliament losing their jobs, thanks to an 11-month transition period during which most of the existing rules and regulations will continue to apply.
Meanwhile, business executives will be keenly tracking a number of Brexit-related developments as they prepare for the end of the changeover.
The future trading relationship between the UK and the EU after the transition period still remains unclear. The UK plans to pull out of the EU’s customs union and single market, hoping to replace it with a comprehensive free-trade agreement.
UK Brexit Secretary Stephen Barclay has declared that Britain wants a “zero tariff, zero quota” trade pact with the EU by the end of the year.
However, the new president of the European Commission, Ursula von der Leyen, has indicated that it is almost certainly “impossible” to achieve such a deal within the “very tight” schedule facing the two sides.
It remains to be seen whether Boris Johnson is willing to seek an extension, or would be prepared to accept a partial deal and keep negotiating.
Absent a replacement deal, the UK would trade with the EU as a “third-country” under terms set by the World Trade Organization. This would involve import tariffs ranging anywhere from 4% to 40%, depending on the product.
The UK pound has fluctuated more than usual since the referendum vote was announced in 2015 and is expected to remain fairly volatile during the transition period. This ongoing volatility could affect companies with exposure to the British currency.
Higher Tax Burden, More Paperwork & Costs
Companies with exposure to the UK could face higher taxes and administrative costs as streamlined regulations for cross-border taxation will no longer apply after Brexit.
For example, EU Member States would charge and collect VAT at importation of goods entering the EU from the United Kingdom.
Rules for the declaration and payment of VAT and for cross-border VAT refunds will also be changing.
HM Revenue & Customs has estimated that in the event of a “no deal” scenario, UK importers will need to file roughly 205 million additional customs declarations.
Furthermore, companies exporting from the UK will spend roughly £13 billion ($17 billion) more per year meeting their customs declaration obligations, according to the agency.
The UK government has offered financial assistance to companies preparing for a “no-deal” Brexit; from £1,500 to train a single employee to £200,000 for investments in new information technology.
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If you have any questions about how potential supply chain changes resulting from Brexit might impact your imports or exports, do not hesitate to contact one of our trade experts for the answers you need.