The government’s recent decision to phase in the introduction of customs controls on goods entering Great Britain from the EU from the start of 2021 has been widely welcomed as a "pragmatic" move, allowing UK hauliers more time to adjust. However, they could also put extra pressure on cashflow.
On 12 June, the Cabinet Office confirmed that new EU border controls will now be introduced in three phases, from January 2021. Specifically, customs declarations and VAT/customs duty payments have been deferred by six months to the start of July 2021, and physical checks on vehicles entering the EU will be stepped up in the same month. More detail on the border operating model to be introduced is expected to be published in the coming weeks.
While the extra time provided to make the necessary arrangements is welcome, particularly in light of the disruption caused by the Covid-19 pandemic, hauliers and freight forwarders must stay focused on Brexit planning and keep their operational and cash management plans on track.
As new guidance is now being published by a number of different sources - the Border Delivery Group, HMRC and the Joint Customs Consultative Committee – it is especially important to keep plans under review.
While most larger operators will already have plans in place, it is possible that some small and medium-sized hauliers have not yet considered the full impact of the incoming changes which will soon affect customs controls and procedures. These businesses need to take action and consider whether they might need additional resources, for example skilled labour, to support with processing customs declarations.
They should also carefully assess the impact of the changes on any existing contracts, taking account of specific incoterms such as whether goods will be supplied on an "ex-works" or "DDP" basis. This information will give them a better understanding of the impact of the changes on the cash position and operating model of their business.
With the volume of customs declarations processed at UK borders set to soar to around 200 million a year, the government is aware that this will place significant pressure on customs brokers, freight forwarders and express parcel operators. To alleviate this, a £50m support package has been announced to help fund their preparations, covering areas such as recruitment, training and IT-readiness. The government has also promised to build new inland border facilities to perform customs checks, helping to minimise congestion around ports.
The decision to defer duty payments and import VAT liabilities by six months is likely to have an impact on working capital cycles. To prepare for this, three-way cashflow forecasting, which involves integrating a company’s forecast profit and loss, balance sheet and cashflow, should be employed. This will ensure the business can meet the required payments in July 2021.
There are various factors to consider when developing this forecasting model. For example, any existing deferral facilities should be considered, as well as the impact of new global tariffs, which will depend on the nature of the goods they are importing.
With the right consideration and planning, there is still plenty of time for hauliers and freight forwarders to prepare. While the decision to phase in the new EU border controls and procedures is welcome, it will require careful planning to avoid putting undue pressure on cashflow.
Sean Turner, transport and logistics VAT specialist, Menzies LLP
