by   |    |   6 minutes  |  in Strategy   |  tagged , ,

Brexit, the UK’s EU exit, has sparked debate from many perspectives. With more questions being asked than solutions offered, Brexit has promoted conjecture and argument where direction and planning should be. But, with a digitized strategy allowing scenario play, you can estimate likely outcomes based on facts, not just speculation.

Brexit and uncertainty

According to the forecasters it was never meant to happen, according to the timetable it still hasn’t happened, and according to some it may never happen. Whether you are in, out or neither, Brexit continues to divide opinion, cross established beliefs, confuse, enthuse and frustrate.

It is a perfect example of a macro economic event in a VUCA world forcing change in companies and societies alike. It is a period of uncertainty where speculation and opinion dominates, when what is actually needed is a balanced view of outcomes driven by input scenarios. To sucessfully achieve this, there are three elements required to scenario plan against your strategy;

  1. Recognition and understanding of the key inputs and their respective value ranges
  2. A system to convert inputs to outputs specific to your business
  3. A register (risks & opportunities) of likley outcomes with owned mitigation plans

Here, I will explore some of the major Brexit scenarios that may affect businesses and provide examples of likely value ranges, possible risks and mitigations.

Brexit and the supply chain

If you currently import or export goods and services from or to the EU there are five main areas where Brexit scenarios can play out;

Customs checks

According to UK Government statistics, UK-EU trade accounted for 53% of total imports and 45% of exports. Currently, UK-EU goods travel freely between borders, whereas UK-nonEU goods require customs checks.

Scenario planning inputs range from ‘no change’ (a customs union or equivalent) to an equivalent system to that currently used for UK-nonEU imports. The likely outcomes from the latter being additional lead times and costs, while customs capacity and capability adjust to the new volumes.

The risk, therefore, concerns supply chain lead times and potential logistics costs. Mitigation plans should concentrate on supplier and warehousing locations, longer lead times allowances and choosing landing ports with preferred customs processes.

Government reporting

Currently Intrastats and EC sales list reports are required to enable analysis of the goods passed between EU countries and help fraud prevention. These may not be required if additional customs checks are required.

Scenario planning inputs range from a reduction in reporting to a potential replacement by UK-EU governments. The likely outcomes from the former being an ease of reporting burden, with the latter being an additional and yet unknown reporting requirement.

A top consideration is how to plan for an unknown reporting requirement with mitigations being around streamlining import/export data capture and/or possible outsourcing of import/export data control.

Duties—quotas and currencies

Whether there is a bespoke trade deal between the UK and EU, or whether the World Trade Organization (WTO) schedules prevail, scenarios arise on potential levies and quotas which may affect the cost of goods and the volumes allowed.

Scenario planning inputs range from 45% to 0% as each product category has a specific rate determined by either the WTO or any bespoke trade deal. The likely outcomes are bespoke to the product mix, but a study by Civitas on the ‘Potential post-Brexit tariff costs for EU-UK trade’ estimates the average WTO tariff across the current trading mix as 4.5% for UK firms and 5.8% for EU firms.

The risk here is around potential increases in the cost of goods traded between the UK-EU. Although it should be noted that governments could opt to reduce tariffs and provide further relief and support to affected industries, and currency fluctuations as a percentage could outweigh the duties as a cost increase or decrease as they have done over the last 2 years.

Taxes

The UK will keep its VAT system as an important means of collecting revenue for the Government. The UK Government has already determined the introduction of postponed VAT in their paper, ‘VAT for businesses if there’s no Brexit deal’.

VAT rates could change post-Brexit and the basis of law would likely move from the ECJ to UK law.  ICAEW, in their ‘tax guide to the implications of Brexit’, state that VAT refunds would likely move from the current electronic system to a claim by local tax authorities under the EU 13th directive.

Scenario planning inputs here are complex and include the changes in VAT accounting and collection, which in turn could affect cash planning and data control—as well as any potential for VAT decreases or increases. The likely outcomes, at least in the short term, being a more complex means of accounting for and collecting VAT.

The risk is around potential increases in accounting time and delays in cash receipts with mitigation plans focusing on streamlining and digitizing import/exports processes and data collection, as well as providing for potential delays for VAT based cash receipts.

Services

As outlined in the Financial Times piece ‘A goods-only Brexit deal puts UK services sector jobs at risk’, the provision of services across the EU currently stands at 40% of EU trade with the UK. The scenarios here are not around levies and quotas, but around parity of qualifications, taxes and social security payments.

Mitigation plans are tailored to the service provided and the countries in which they are provided, but all focus around the certification requirements for payment of performance taxes.

Brexit and people

It’s important to remember that Brexit affects more than just goods and services. UK-EU workers currently enjoy freedom of movement between EU countries, whereas UK-nonEU citizens require visas or permits to work.

If work permits and/or visas become a requirement for all EU non-UK citizens working in the UK, as it does currently for non-EU workers, then there will need to be an appropriate onboarding and tracking system to ensure fast and compliant fulfilment of positions. There needs to be an understanding and acceptance of parity qualifications to fill competency and certification requirements.

The risk here is to maintain the flow of competent resources and prevent visa outages. Mitigation should concentrate on recognizing qualification parities between countries, introducing fast and reliable onboarding processes, and controlling digitized visa and competency/certification records.

OK I’m interested, where do I start?

IFS Enterprise Operational Intelligence (EOI) and Corporate Performance Management (CPM) solutions can provide forecast outcomes based on variable input scenarios to a business’s digitized strategy, allowing Macro scenario play to prepare corporations for uncertainty in global events. IFS Applications HCM solutions can assist with onboarding, competency and certification tracking of staff. Go onto the IFS website www.ifsworld.com to find out more, or email me on steve.treagust@ifsworld.com.

I welcome comments on this or any other topic concerning Finance, HCM, CSR & business strategy.
Connect, discuss, and explore using any of the following means:


Do you have questions or comments?

We’d love to hear them so please leave us a message below.

Follow us on social media for the latest blog posts, industry and IFS news!

LinkedIn | Twitter | Facebook | Google+

Image credit: Photographer: DrAfter123

Leave a Reply

Your email address will not be published. Required fields are marked *