When it comes to Brexit, the only certainty is your ability to act now. From currency fluctuations to new customs procedures, the Brexit Essentials highlight the key questions your business needs to address ahead of the UK’s departure from the EU.
Don’t wait, take action today with the range of supports available from Enterprise Ireland.
What is your EORI number?
The EORI number allows businesses import or export with countries outside the European Union. It is a unique reference number recognised by all member states.
The EORI number is inserted on all customs declarations. Without this number goods will not be cleared at customs. To obtain an EORI number, simply register directly with Revenue. It takes only a few minutes.
What is the commodity code for your products?
A commodity code is a 8 digit code (for exports) and a 10 digit code (for imports). It forms part of a harmonised system developed by the World Customs Organisation (WCO) to classify goods into one of about 5,000 different commodity groups. The system used to identify the commodity code is the EU TARIC.
Determining the correct commodity code for your product is important as it is used to identify duty rates but also other customs obligations like licensing requirements or quotas. If the code is incorrect, companies may incur penalties from Revenue.
What is the country of origin for your products?
One of the main factors in determining how much duty a business will pay on imports is where the goods have originated from. Goods that are imported from certain countries may qualify for preferential treatment e.g. a reduced or zero duty rate. This is often seen in trade agreements that the EU has in place with non EU countries and regional trading blocks.
In customs terms, there are two main categories of origin . Goods that are “wholly obtained” e.g. strawberries grown, processed and packed in Ireland and goods that have been “sufficient processed” with materials from more than one country. In the later, determining origin especially for manufactured goods can be complex as origin is determined by the country in which the last “substantial processing” took place.
What is the potential tariff for your goods?
When the UK becomes a third country, the movement of goods to and from the UK may require the payment of a tariff. A tariff is a tax on foreign imports and can potentially add significant cost to the importer.
The UK has announced its new tariff system which will apply at the end of the transition period to all countries, including Ireland, with which it has no free trade agreement.
Known as the UK Global Tariff, it will be applicable from Jan 1st 2021. If a trade deal between the UK and EU is reached before this date the aim would be to avoid the imposition of all or most of the tariffs.
To identify the tariff, goods must first be classified. To see the import duty that applies to goods imported into the UK, enter your commodity code into the Tariffs Tracker tool on the UK government website.
What is your break-even exchange rate?
Currency volatility has always been a characteristic in Irish trade with the UK. However, Brexit has and will continue to bring disruption and uncertainty which in turn has an impact on the movement in currencies. Understanding and managing currency movements has now become critical as businesses look to prevent the erosion of precious margin.
One of the key steps in the management of currency risk is the identification of the break even €/ Stg exchange rate on UK sales. Adverse movement in the rate can have a direct impact on overall profitability and understanding this break even point allows companies to model and stress test various currency scenarios right up to parity.
How much extra funding will be required to support your Brexit action plan?
When looking at the Brexit impact on cash flow, factors like extra customs charges, tariffs, advance purchasing and funding to explore new markets come into consideration. The first step is to develop a robust forecasting model to understand how much additional funding, if any, is required to support a company’s Brexit action plan and when it might be needed.
Along with internal measures to support cash flow e.g. a deferred payment facility from Revenue or efficient credit controls, companies can also look at a range of external financing options. The Strategic Banking Corporation of Ireland (SBCI) has launched a €300m Brexit Loan Scheme and a Future Growth Loan Scheme to support working capital and longer-term strategic investment respectively. These funds are delivered through the main Irish banks and are worth considering if finance is required to fund Brexit plans.
What steps have you taken to reduce the risks of adverse FX movements?
The first steps in currency risk management is to identify the extent of the exposure and to quantify that risk. Once a business has identified the break even €/ Stg exchange rate on UK revenue and stress tested the various currency movement scenarios, they can look at ways to effectively mitigate some or all of this risk.
The options range from the simple to the more complex. Opening a sterling bank account, invoicing in euros if possible and looking to identify natural hedges within cashflows i.e. matching currency costs in Stg with corresponding revenues. Alternatives like FX options and forward contracts are also worth exploring with a trusted financial advisor.
What is the impact of Brexit on your company's cash flow?
When looking at the Brexit impact on cash flow, the impact of adverse currency movements is often the first consideration. However, other Brexit factors like extra customs charges, tariffs, advance purchasing, stockholding and potentially new credit terms from suppliers will all put extra strain on the cash cycle.
To manage the risk to cash flow, the first step is to develop a robust budgeting and forecasting model to understand the impact. This will help identify the key variables to focus on and if and when additional capital may be needed. It is important that this model is reviewed and updated frequently as the uncertainties around Brexit evolve.
What % of your goods are sourced from or through the UK?
Brexit has the potential to have a significant adverse impact on supply chains. The UK accounts for approx. 26% of total Irish goods imports. The imported goods are frequently used as intermediary goods which are processed further in Ireland and consequently directly impacts Irish export performance.
The greater the percentage of goods sourced from or through the UK, the greater the potential impact on your business e.g. potential customs tariffs, border delays etc. To mitigate the risk, the first step is to understand the overall exposure by analysing all suppliers from a Brexit context and identifying those suppliers that will have the greatest impact on the business.
Have you identified alternative suppliers?
Brexit has the potential to cause serious impact on a company’s supply chains.
The key steps include an analysis of your suppliers from a Brexit perspective and the identification of those suppliers that will have the greatest impact on your business.
Once identified, a business can work with their suppliers to put measures in place to ensure continuity of supply. However, if the most critical suppliers are not fully prepared and the Brexit risks remains unacceptably high, then alternative supply options should be considered. The identification and qualification of new suppliers requires considerable time and resource. However, having an alternative supply option makes good sense from an operational risk perspective irrespective of the Brexit outcomes.
Which UK supplier will have the greatest Brexit impact on your business?
Not all suppliers are the same. A company may have a large number of UK suppliers. Some may be easily replaced with alternatives while others may be more critical to the business due to long standing relationships, favourable credit terms or a unique product offering.
The key step is to analyse your suppliers from a Brexit perspective and identify those suppliers that will have the greatest impact on your business. The impact be may in terms of greater costs, customs delays or regulatory divergence.
Only when the most critical suppliers are identified, can steps be taken to mitigate some of these risks.
What steps have you taken to maintain security of supply?
When a business has identified their critical suppliers from a Brexit perspective, it can then work to mitigate some of the risk.
Key suppliers are not easy to replace. For the most important Brexit relationships, it is crucial at a minimum to engage with the supplier and to develop long term supplier agreements. Options around increased ordering/ storage capacity and supply commitments can be explored as part of this.
If the supplier does not engage and the risk remains unacceptably high, then alternative supply options can be considered.