The effects of Brexit and the pandemic continue to ripple across UK-based businesses that trade internationally. Trading internationally has become extremely challenging in light of the recent ongoing geopolitical events and the cost-of-living crisis. To cope with a more volatile trading environment, businesses need to manage these day-to-day challenges and implement new strategies.
Businesses are finding that the process of importing and exporting goods has become much more challenging. Businesses are having to contend with significant supply shortages affecting certain goods, such as:
- Semiconductor chips
- Timber
- Grain
There is further disruption and uncertainty generated by additional factors such as:
- Geopolitical tension
- Cost inflation
- Forex volatility
Protecting margins
Some businesses have already taken steps to increase certainty and protect margins by fixing prices for key supply agreements for the short to medium term. Due to recent events coupled with the economic downturn, some businesses have experienced a dip in consumption and have resorted to shortening supply chains to reduce costs and improve reliability. Although, for those who have seen increased demand levels, it is important to shop around for the best deals possible to leverage volume orders.
Border Controls
There are now new border controls in place affecting both the import and export activity with the EU, further compounding the volatile trading environment.
New Border Control Posts have only recently been established, leading to a higher risk of supply chain disruption. There are also additional costs to consider in addition to a greater administrative burden, which can be seen in the form of customs declarations. Further controls will continue to be phased in over the year, including physical checks at:
- Inland Border Facilities
- Border Control Posts
This will also be joined by further Safety and Security Declarations.
Remaining compliant
It is important for businesses trading with the EU to access the most up-to-date advice to remain compliant. Both legislative and governance changes are crucial for businesses to be aware of, as these may have impacted their operations model – examples of these include the postponed VAT import accounting (PVA System) and the new Rules of Origin. Some businesses may need access to specialist resources such as tax advice and support in preparing and submitting customs declarations.
EU-wide VAT Rules
It is important to note that following the UK’s exit from the EU, the distance selling requirements for businesses selling goods business to consumer (B2C) from the UK no longer apply, and all sales of goods to overseas customers are exports from the UK. From 1 July last year, EU-wide rules came into effect, which altered the VAT treatment of the B2C trade in goods throughout the EU by extension of the existing Mini One Stop Shop.
Effect on businesses
The VAT rules allow a business to register in one EU Member State and file a One Stop Shop (OSS) VAT return to account for VAT on all B2C sales of goods throughout the EU. Non-EU sellers, now including the UK, may also apply to use the OSS regime, being permitted to register in any single EU Member State under the Import One Stop Shop (IOSS) for the import and sale of goods throughout the EU. The regime avoids the need to potentially register in multiple EU Member States to sell goods to consumers there.
The low-value threshold for individual consignments of goods imported into the EU was also increased to €150, below which no import VAT or duty applies, and VAT is only due at the point of sale. Consignments over €150 are subject to the normal rules for import, subject to import VAT and duty, as applicable.
In theory, the OSS and IOSS now facilitate the collection, declaration and payment of VAT for sellers making distance sales of goods to consumers in the EU Member States. It also means that the buyer is only charged at the time of purchase and therefore does not incur any unexpected charges when the goods are delivered. If the seller is not IOSS registered, the customer may have to pay import VAT and possibly other customs clearance charges.
Registration for both the OSS and IOSS is available through an online portal in each EU Member State.
Strategy review
Businesses should conduct a review to ensure that their international trading strategy is fit for purpose. This can be done by:
- Ensuring an accurate understating of what customers and stakeholders require
- Being aware of the conditions affecting end markets
- Undertaking qualitative market research with key stakeholder groups
- Ensuring a constant review of market research
- Reviewing the business cost base
Businesses need to remain agile in today’s uncertain world with flexible strategic plans. This will allow businesses to easily adapt in case of shifts in demand or financial changes that, if left unchecked, could undermine profitability. The use of data has never been so vital, therefore ensuring there are systems in place to efficiently collect and appropriately analyse that data will help to keep strategies on track.
New ways of thinking
Value systems have likely evolved over the last 2 years. Therefore, business leaders may need to adjust their thinking to consider this. For example, businesses may need to focus more on finding new ways of attracting and retaining talent, especially with the current high levels of skills shortages.
With a growing focus on social and environmental governance, businesses may need to emphasise measuring their impact on the planet and society. Many boards have used the pandemic as an opportunity to review their priorities to increase focus on non-financial outputs to differentiate the business and enhance its sustainability.
Internal focus
Finally, businesses should realise the importance of an internal focus during the current volatile trading environment and look outwards. Investing in people development strategies and enhancing employee incentives and remuneration will help to drive productivity and mitigate the risk of skills shortages. Investing in innovative technologies and systems can also improve efficiency and help to give businesses a competitive edge.
Running a business well by optimising profits and minimising the impact of cashflow shocks has become more challenging generally, but even more so for organisations that are trading internationally. Armed with a strategic vision and plan that is fit for purpose, businesses will be better placed to manage disruption and fulfil their growth potential.
This article was written by International Accounts and Advisory Director, Martin Hamilton and Senior VAT Manager, Sean Turner.
Menzies is a top 25 leading firm of accountants, finance and business advisors that operate out of a network of offices across Surrey, Hampshire and London, providing our clients with easy access and local knowledge. Described as the ‘best performing firm outside of the top 10’ by Accountancy Magazine, Menzies has over 400 employees and an annual turnover of more than £40m.
