19 March 2019

Brexit: Stockpiling and VAT implications

Customs rules post-Brexit could have significant ramifications for businesses

At the moment, nobody truly knows the business implications of Brexit – let alone the VAT ones. To combat this uncertainty, however, we have already seen some organisations stockpile goods in order to ensure trading can continue throughout the transition period and beyond with limited interruption.

Of course, it’s not just big companies like Bentley and Bacardi who are stockpiling, the Scottish Government are stockpiling vaccinations and many individuals with disabilities or additional needs are stockpiling necessary equipment and specialist foodstuffs in preparation for Brexit.

Under the existing customs rules, if a company in the UK exports to various parts of Europe, the cargo can simply be driven between drop off points in each country. However, if post-Brexit hard borders came into effect, drivers would have to stop at each country’s borders for a variety of checks, including the tax authority valuing goods and deciding what tariff and what VAT and duty has to be paid. This procedure and tariff is likely to be different at each country’s border, and VAT is recoverable, but duty isn’t.

These changes could have significant ramifications for businesses, as duty would either need to come out of the business’ profits or be reflected in the increased cost of goods which would be passed onto the buyer – lose lose for all involved.

Hard borders would also add time pressures to exporting, which could be particularly problematic for livestock exporters and Scottish seafood, which has to be delivered within a 24 hour window.

We have also seen some of our clients take action. In particular, one of our clients with a distribution hub in Holland, and an orderbook which extends into the future. The company has taken a risk by manufacturing all of the orders they believe they can depend on, and are stockpiling them in the warehouse in Holland to avoid the possible extra charges for exporting into Europe from the UK.

If we do face a worst-case scenario (in which there is no deal and hard borders) then a long transition period is vital; businesses will need time to understand the various implications for each country they export to.

In this scenario, my advice to businesses would be: if you’re cash rich and have confidence in the demand for your product, then stockpiling isn’t a bad idea. At least then if we do face hard borders,  there will be no duty to pay and you’ll be able to trade through the transition period.