Published: 25th February 2021
Our new relationship with the EU has created a problematic trading environment for UK businesses. The deal was only agreed on 24th December 2020, and with our transition out of the European Union taking place on 31st December, the timing made it extremely difficult for businesses to absorb and then act on the new requirements.
Brexit ‘on the ground’ translates to onerous paperwork, customs delays, and rules of origin complexities that can result in tariffs being applied if proof of origin cannot be provided. All when businesses are already struggling to survive the economic effects of the coronavirus pandemic.
The complex, multi-faceted nature of modern supply chains means the largely smooth pre-Brexit UK/EU trading arrangements have undergone significant change. A melting pot of complications, uncertainty, and barriers to financial recovery now exists.
Begbies Traynor Group is the UK’s leading business rescue and recovery specialist, and can provide reliable independent advice for you and your business.
So why are tariffs being applied in what is supposed to be a tariff-free deal, and what options are available if your business is struggling due to new Brexit tariffs?
New rules mean that businesses importing goods from, or exporting to, the EU may need to pay duties depending on the type of goods, their value, destination country, and the country of origin.
Rules of Origin are particularly complex for businesses importing goods from around the world, and then exporting to the EU market. They need to provide proof of the country of origin, and if more than 40% of the components originate outside of the UK and EU, they may be subject to tariffs.
VAT must also now be collected at the point of sale, not at the point of importation, requiring businesses to register for VAT in every EU country to which they export. The cost of delivery and courier services to the EU has also increased, leaving businesses with a dilemma.
If they increase their prices to customers, they could price themselves out of the market. Equally, moving operations to the EU requires significant investment that is simply not available for many.
So with struggling businesses experiencing a considerable administrative burden and time drain, what options might be open?
If your business is experiencing financial distress and you are concerned it may be insolvent, you must prioritise your creditors’ interests and seek assistance from a licensed insolvency practitioner (IP).
There may be a range of rescue options open to you, potentially including:
An eight-week moratorium commences on entry into company administration, providing time to develop a plan for the future of your business without creditor pressure. On exit from administration, you may be able to enter into a Company Voluntary Arrangement (CVA), for example, or perhaps restructure your organisation to better deal with Brexit tariffs and other financial pressures.
Company Voluntary Arrangement
A Company Voluntary Arrangement restructures your debts within a legally binding agreement. It allows you to make one affordable monthly repayment that is distributed to creditors according to the arrangement. CVAs are suitable for businesses deemed viable for the long-term – they typically last 3-5 years, and allow you to remain in control of the company and continue trading for the duration of the agreement.
Alternative sources of finance may be available that can boost cash flow and help you deal with the new Brexit tariffs. These include invoice finance and asset-based finance, both of which are flexible forms of funding, with an application process that is typically straightforward when compared with bank lending.
HMRC Time to Pay (TTP)
Operating with tax arrears may threaten your business’ survival, as HMRC can quickly close down businesses they believe are insolvent. You may be able to negotiate a Time to Pay arrangement, however, which can protect the business longer-term and free up more cash to cover the new Brexit tariffs. A TTP can help you avoid penalties for late payment, but proactively contacting HMRC to discuss the company’s financial situation is important.
Our partner-led team at Begbies Traynor Group can negotiate with HMRC on your behalf, and provide further professional advice on how to deal with the new Brexit tariffs. We operate offices around the country, and can offer you a free, same-day consultation.