Brexit

Preparing your business in the case of a No Deal Brexit

The BFC continues to communicate with government to emphasise that a no deal Brexit is a scenario that should be avoided. The reality that a no deal could still happen continues to have a negative impact on the fashion industry. Based on export figures from 2018 it is estimated that switching to World Trade Organisation (WTO) rules would cost the fashion industry £850-900million.
 
The BFC recommends that businesses in the industry undertake a full analysis of their operations and prepare as much as possible for any outcome. In a “no deal” scenario there will be no transition period and EU law will cease to apply to and in the UK as of 31st October 2019. Broadly for trade that would mean that UK businesses will have to apply customs, excise and VAT procedures to goods traded with the EU in the same way that already applies for goods traded outside of the EU.
 
It is important that businesses take a proactive approach to understanding the implications. The information below is based on a no deal situation.  Whilst every effort has been made to ensure that the information is as full and as up to date as possible this is a fast-moving situation and we recommend that businesses seek their own independent advice in preparation.
 
Recommended Preparation for “No Deal” Scenario
 
TRADE
 
Import Tariffs

  • Around 80 fashion tariff lines will be subject to import duties of 8-12%. The government has stated that yarns and fabrics will be duty free for a year.
  • Note that customs have the legal right to seize, destroy and even sell on goods that are not properly imported.
  • Temporary rates of customs duty (tariffs) on imports after no-deal Brexit can be found here.

 
Export Tariffs

  • In the event of a no deal the UK will revert to World Trade Organisation (WTO) rules, which will mean between 6 and 12% tariff on exported product.  This represents a significant increase in costs that may come back to your business.
  • Ensure you keep on top of your admin relating to importing and exporting, and ahead of, and post, visiting international markets to show/exhibit. Customs can demand to inspect paperwork from the past 7 years.

Exporter Operator Registration and Identification Number

  • You will not be able to export goods from the UK to the EU without an EU EORI number. You should check that the entity receiving your goods in the EU can provide you with their EU EORI number.  In the event that they can’t, or if you are exporting to an EU branch of your own business, you will need to apply for your own.
  • There are several ways in which to apply for an EU EORI number and these are listed below, however we strongly advise you to seek guidance (preferably from a lawyer) on which process is best suited to your company. If you are unable to get legal advice then HMRC have a free online service offering guidance on obtaining an EORI number, the form is here. 
  • Apply for an EU EORI number through the Customs Agency within the country you trade with most
  • Register your company within the EU
  • Nominate a third party (this will be a ltd company, VAT registered and a place where business is done and not just a post box address in the EU) 

Value Added Tax

  • You will still be able to use the EU VAT registration number validation service, but UK VAT registration numbers will no longer feature on it. HMRC is developing a system to validate UK VAT numbers should there be a no deal. Further information on VAT Rules for businesses in a No deal scenario can be found here. 
  • International VAT guidelines can be found here.

 

Moving Samples Internationally: Sample vs Example vs Finished Goods

  • In the eyes of customs, a “sample” is something that you could not resell: it is cut-up or in parts and is stamped in indelible ink “SAMPLE”. See below link for full rules on Samples from HMRC. Samples can be declared using Customs procedures with no duty due.
  • An “example” looks pristine and could be sold, which most fashion samples are, and would be subject to full duty.
  • Definition of a Sample -Customs Rules and how to import Samples duty free can be found here.  See 2.4 for definitions of sample and example.
  • Examples can be taken into international markets in two ways:
    1. Under a Temporary import procedure
    The temporary admission rules according to HMRC for bringing in goods duty suspended
    https://www.gov.uk/guidance/temporary-admission
    2.Using an ATA carnet
    ATA Carnet
    Customs explanations on the use of a CARNET for moving goods temporarily
    https://www.gov.uk/government/publications/notice-104-ata-and-cpd-carnets
    Link to the London chamber of commerce -ATA Carnet page to organise applying for Carnet
    https://www.londonchamber.co.uk/export-documents/ata-carnet/
  • Hand carrying items into foreign markets in suitcases without complying with customs regulations is illegal in most countries, we recommend you review the rules for each country you import to. Merchandise in baggage rules in a no deal scenario can be found here.

 

 Contracts and Incoterms

  • It is recommended that you review your contracts and Incoterms to ensure clarity of terms and conditions and responsibilities between you and your buyers.
    Please click here for Incoterms 2010 ( e.g. EX Works) and link to International Chamber of commerce explanations.
  • Note that the Brexit date falls on a Thursday, therefore the changes will be implemented on Friday, therefore you need to ensure consignments that are travelling at that time have both old and new customs requirements and identification.

 
 IMMIGRATION

  • Unless you have been granted UK citizenship then all EU/EEA/Swiss Nationals (and their dependent family members) must register via the Home Office's Settlement Scheme: you will be granted either pre-settled (if have spent less than 5 years in the UK) or settled status (if you have been a resident in the UK for at least 5 continuous years). You must still register for settlement status if you have been granted permanent residency. Applications can be made via Android devices or via post/online. Proof of ID (passport/ID card) and residence in UK will be required. Might ask for additional evidence in some cases to prove presence in UK.
  • The deadline for applying under the Settlement Scheme is currently 30 June 2021, or 31 December 2020 if the UK leaves the EU without a deal. However, given the current uncertainty, it is strongly suggested to register as soon as possible (ideally prior to 31 October 2019) without delaying such application nearer to the deadline.
  • Further information can be found at https://www.gov.uk/settled-status-eu-citizens-families/applying-for-settled-status and further Information for employers can be found here:

 
INTELLECTUAL PROPERTY

  • EU wide Registered Trade Marks and Designs: any existing EU Trade Mark or Community Design registration will be cloned into a UK registration automatically on Exit Day without charge.
  • EU wide Trade Mark and Design applications: There will be a nine month window after Exit Day to file new UK applications based on EUTM applications. The original filing date of the EU application will be preserved. This will not happen automatically, i.e., you need to take positive steps to make the application at the UK IP Office and there will be a separate fee.
  • Any EU wide Registered Trade Marks and Designs due for renewal: a separate renewal will be required in the UK if the renewal date falls after 31 October 2019.
  • Unregistered design rights: question mark for now. Existing Unregistered Community Designs will continue to be protected in the UK for the remainder of their term. A Supplementary unregistered design rights will be created in the UK post-Exit for new designs that are first disclosed in the UK, which will mirror the current.
  • Unregistered Community design. This new right will cover only the UK; to rely upon the Unregistered Community Design, a design must first be disclosed in the EU.  You should therefore consider registering key designs or take steps to arrange simultaneous disclosure of designs. If you show in London, the British Fashion Council will propose a programme of LFW live streams to an invited audience of guests in key EU markets in order that first disclosure is within the EU and UK simultaneously.
  • For any new marks: a new EU TM will take four to five months to register, so new applications filed prior to 31 October 2019 will not be cloned (but you will be able to file a separate UK application within the 9 month window after Exit Day preserving the same filing date), unless there is an extension to the Brexit leaving date. Evaluate business strategy and decide which TM to prioritise, and whether it is appropriate to file a separate UK application at this stage.
     

FINANCIAL PLANNING & MANAGEMENT

  • Businesses should review their key contracts to check exposure, as well as existing financial and non-financial regulation and compliance obligations (including tax, legal, audit, financial reporting and insurance) to mitigate the impact of Brexit.
  • Businesses should map their supply chains to identify any risks, as well as review suppliers’ terms. Inventory levels and working capital will also need to be reviewed to prepare for any disruption to the supply chain in the event of a no deal Brexit.
  • Forecasting and in-depth financial modelling can mitigate risk. Businesses will need to forecast and plan out profits. It is important to consider any negative exposure to foreign exchange and ensure that there is enough capital for any bumps on the road.
  • The advice is to run an impact assessment and stress testing and financial modelling to highlight key areas for concern.
  • Businesses should review their structure to mitigate risks. Sole Traders could consider becoming LTD to secure personal liabilities. LTD should review all contracts to ensure they are in the company name. In addition, reviewing your stance and exposure to the global macro conditions and how to improve either productivity or business efficiency should be considered as a priority.
     

GENERAL INFORMATION
 Further general information and updates can be found from the following sites: