Susie Walker: Uncertainty for businesses to continue beyond Brexit day
As the UK enters the Brexit transition period, Susie Walker, head of tax at Johnston Carmichael, urges businesses to be prepared for leaving the EU without a trade deal.
Even though the UK is now officially entering the 11-month transition period, there is no guarantee that a comprehensive trade deal will be secured from the European Union (EU) before 31 December 2020.
Our recommendation is that businesses should continue preparations for a no-deal Brexit (NDB). The transition period is in place to enable the EU and UK to negotiate and agree their future economic relationship, but there remains a risk that a trade agreement will not be reached by the end of the year.
Awareness and planning are essential to mitigate against any issues.
Currently, the UK and EU trade on a “no barriers” basis – the Single Market for goods and services. This means no tariffs, no border controls for goods and a free market for services. In the event of NDB, this framework will disappear, and the UK will most likely fall back on World Trade Organisation (WTO) terms, resulting in higher costs on all cross-border trade in goods between the UK and the EU as new tariffs take hold and customs clearance becomes more complex.
Businesses must consider now what information they need to trade internationally but should also plan for expanding their horizons beyond the EU and identify commonalities with businesses in alternative markets. New associations can provide solutions and powerful networks, all of which can help to enhance future growth both pre and post Brexit.
Employers with EU nationals on the payroll must consider the impact on current workforces and future recruitment. EU nationals living in the UK have until 30 June 2021 to make an application to the EU Settlement Scheme.
Immigrants arriving from the EU from now until the end of this year will have largely the same rights as prior entrants before Brexit – the right to live, work and study - and will have the opportunity to apply for three years of temporary leave to remain. Those who arrive after the transition period ends on 31 December 2020 will be subject to new immigration rules, similar to those in place for non-European nationals.
Businesses with UK employees working in an EU member state will also be affected with UK nationals now required to register to continue to work. Local arrangements are in place across various EU member states and are largely dependent on reciprocal offers by the UK.
Another point for employers to be mindful of is that currently individuals who are working across the European Union are covered by the EU Social Security Coordination Regulations. These EU Regulations operate to ensure workers are subject to the social security legislation of a single member state at any particular time – so there can be no double contributions on the same income. The basic rule is that contributions are paid where work is performed, however, there are exceptions for individuals working outside their home country for temporary periods.
The current EU Regulations will continue to apply during the transition period until 31 December 2020. At the end of the transition period, the UK’s relationship with the EU will be determined by the new agreements which we will enter into on trade and other areas of co-operation. The question of continuing social security coverage will be a focus of these new agreements.
If, at the end of the transition period, there is no legislation to replace the current EU Regulations then we would be looking at a no-deal scenario in this respect. In such a scenario, the UK has proposed contingency legislation which would mean that we would continue to apply the EU Regulations on Social Security on a unilateral basis. At this point, there is no guarantee that the remaining EU member states, who have not already negotiated bilateral treatment with the UK, would approve or reciprocate this going forward.
So, it is entirely possible that dual Social Security liabilities could arise in respect of posted, cross border or multi-state workers across the EU and European Economic Area (EEA) states.