With Brexit less than 100 days away, the prospect of no deal is more likely than ever. The UK’s transitional border plans were released in February ahead of the March deadline. Increasingly large sums have been spent on preparation. But many companies aren’t ready. As a result of no deal, what presently are considered moving goods within the EU would become imports and exports and as such many UK companies would need to familiarise themselves with customs and border procedures for the first time.
Prospect Magazine article, August 2019. Available here.
Traders urgently need clearer guidance on what to do next
The government needs to increase its efforts and actively support businesses in preparation, to avoid chaos at the borders. But crucially, it is not enough simply to put contingency measures in place. The government also needs to think about how it communicates with firms to increase awareness and engagement. There is no point announcing more money and assistance if businesses don’t know about the help or do not understand how to access it.
In the event of no deal, all UK traders will be responsible for making customs declarations for the goods moving between the UK and the EU, as well as from the UK to the rest of the world. They will need to hire and train staff to undertake customs procedures and purchase appropriate software that allows them to connect to HMRC’s customs declaration systems. Alternatively, companies can choose to seek help from a customs broker. Even then, however, they will typically remain liable for declarations made on their behalf and will need to be familiar with the process.
No deal would affect companies in different ways. Large firms, which have experience of trading with non-EU countries, will often have complex structures leading to specific challenges. Around 145,000 VAT-registered companies that have not previously traded with countries outside the EU will need to understand the basics of international trade and their obligations as first-time importers and exporters. They will also need to apply for an Economic Operators’ Registration and Identification (EORI) number—a number each company trading internationally is required to have.
The key element in the government’s no-deal preparations so far is the simplification of the standard import and export procedures—the Transitional Simplified Procedures (TSPs)—which would apply to the majority of UK-EU trade. Technical guidance, with explanations on how the procedures will work and how to register to use them, was published on HMRC’s website.
The government has made several other efforts to reach out to businesses. Letters were sent to the VAT-registered companies who have so far only traded with the EU. Similar communication was also sent to companies that already trade outside the EU. The government has tried to engage with business associations, representative bodies and chambers of commerce. Various self-service materials have been made available on the government’s websites: the Partnership Pack on preparing for changes at the border, the EU Exit business website and the Department for Business, Energy and Industrial Strategy’s EU Exit “Business Readiness Weekly Bulletin.” These resources collect technical notices, videos, leaflets and sector primers as well as links to online seminars and information on available training. In addition, the government established an £8m training fund available to upskill companies on customs issues.
However, most of the above resources have had a surprisingly low take-up. Very few companies have accessed the government’s no-deal training fund. Only an estimated 10,000 firms have registered for TSPs since the scheme became available back in February. Out of the estimated 145,000 VAT-registered companies that require an EORI number, approximately 50,000 have applied so far. Further, the government estimates that there are additional 100,000 non-VAT registered traders who would also require an EORI number. As they are not registered, HMRC does not hold any information on these companies and as a result, cannot contact them directly.
The key reason for such a low take-up is lack of awareness and general uncertainty. For the last three years, businesses have received very mixed messages—the government maintained that the deal with the EU was the default position but encouraged businesses to prepare for no deal. The guidance currently available is also not necessarily user-friendly and easy to follow. Crucial information is scattered throughout various notices and a lot of it is descriptive rather than focussing on actionable advice.
Another problem is the level of the information provided. Experienced importers and exporters require detailed information on how TSPs will operate in practice, for example how they relate to other existing customs simplifications or procedures such as transit. They have raised several concerns around the simplified procedures and are waiting for the government to address them (for example on whether or not customs brokers will be able to apply for TSPs). New importers and exporters are likely to find a long list of technical notices overwhelming. They require a simple introduction to the importing and exporting process. This information needs to be clearly communicated by the government or trusted intermediaries.
Companies cannot be expected to know that they need to apply for an EORI number when they do not understand the difference between what they currently do and actual imports and exports—they simply do not appreciate why they would need one. Understanding the context of international trade and basic customs principles would help them know what actions to take.
So what can the government do in the upcoming weeks? Given the short amount of time left and the potential consequences of businesses not being ready, all of the above efforts should be intensified. No-deal guidance for businesses should be simple, clear and actionable.
EORI numbers could be allocated automatically to the 145,000 VAT-registered companies, with a possibility to opt-out. Auto-enrolment for EORI numbers has been used in the past by other EU states. More local engagement via intermediaries such as business associations or chambers of commerce might help to reach smaller regional companies, as well as help to target the unregistered businesses.
Targeted communication is required for different types of firms. A particular focus should be placed on reaching the non-registered businesses that currently only trade with the EU. Back in January, the government launched a radio campaign to increase awareness of the Prepare for EU Exit website. Similar methods could be used going forward. Finally, all government efforts should also focus on long-term capacity building and closing the customs knowledge gap—they should prepare UK businesses not only for day one but also way beyond that.