What contingency actions should I be taking now to prepare for ‘no deal’?

04/01/19

As we enter 2019, the UK is only weeks away from formally leaving the EU. As the clock ticks down to 29 March 2019 it is still possible that a deal will be agreed in time. But there remain some complex areas of disagreement to be resolved and the UK Parliament is divided, with the risk that it will reject the deal when it is presented. This not only increases the risk of ‘no deal’, but also this stark reality becomes clear very late in the day, leaving business’ with insufficient time to respond.

For some time, we have been recommending a number of “no regret” areas that businesses should consider, to make sure you’re ready either way. However, with under three months to go, we believe it is imperative that businesses start thinking seriously about how to guard against the short-term disruption of leaving without a deal. To help, we’ve been thinking about contingency actions you should be taking now. Our advice is consistent with the UK Government’s own guidance and draws on our experience of supporting businesses across all sectors of the economy, both small and large.

The areas we’ve been focussing on with our clients are:

  • Trade and customs
  • People and immigration
  • Strategy and business plans
  • Regulation and innovation
  • Governance and reporting

Understanding the material effects of a ‘no deal’ Brexit in these areas will help highlight the things that need the most urgent action, and your options. While your focus should be on the highest impact areas and what’s most important to your business, your contingency plans should be sufficiently broad and detailed to pick up on the sometimes small changes required to maintain business continuity in the event of ‘no deal’. They should be proportionate, risk based and activated as they are needed.

Getting the governance right is also essential. You should be clear about who has ownership and accountability for the decisions and planning, to avoid the potential for chaos and ‘blamestorming’ in the event of ‘no deal’ or if costly mitigating actions turn out to have been unnecessary.

Six contingency actions to get your business ready for a ‘no deal’

With all that in mind, we’ve outlined six practical things you can do now to prepare for a ‘no deal’ scenario. Bear in mind that these are just examples. Ultimately, the scope of your contingency plans and whether action is required now, will depend on your individual business model, your exposure to Brexit and your risk appetite.

Increasing stock levels

How much extra stock do you think you’ll need if we leave the EU without a deal and the borders jam-up? A number of our luxury retail clients are planning to hold at least a month’s worth of stock as back up. But that obviously won’t work for retailers selling products with a short shelf-life, like supermarkets, or for those operating a just-in-time model, like those in the auto or aviation sectors. In such cases, it’s necessary to look at alternative sourcing or distribution options. There are also some lower-level, yet very important measures to take. For example, do your contracts and International Terms and Conditions of Service (INCOTERMS) show you as the importer? If not, you may not be able to import the stock at all.

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Know your suppliers and Brexit exposure

One of the eight ‘no regrets’ decisions we recommend all our clients take is really getting to know their supply chains. Engage with your suppliers to understand their own supply chains and test their Brexit readiness. Use this information to assess your supply chain risk, and evaluate the changes you might need to make as a result. Perhaps you find you’re over-reliant on one particular supplier, which may no longer be able to provide you with the products or services you rely upon? Diversifying could spread your exposure to risk.

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Ensure you can continue to transfer personal data

On leaving the EU without a deal, it is unlikely that the EU will recognise the UK’s data adequacy in the short-term. This will mean that EU-based companies will not be able to transfer EU personal data to the UK, unless they have appropriate third country GDPR-consistent provisions in place, such as model clauses or binding corporate rules. This applies to data shared both within and between companies, and includes data centres. Similar restrictions could also apply to the transfer of personal data between the UK and other countries, such as the US. If your business relies on the transfer of personal data make sure you have the right provisions and model clauses in place now.

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Make sure you’ve got the right approvals

If you’re operating in a regulated area it’s critical to make sure you have the correct approvals and licences to keep trading after a ‘no deal’ Brexit. Think about what legal and technological structures you might need to put in place to meet the new, post-Brexit requirements. For example, financial services in the UK are allowed to operate within the EU under the current passporting rules. After 29 March next year, financial service providers could need 27 separate licenses to keep operating in each EU member state. Companies operating in other highly regulated areas, such as pharmaceuticals and many of the professions, will face comparable restrictions on selling their goods or services to the EU.

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Apply for HMRC accreditations now

If it’s appropriate for your organisation, you should be checking whether you have the right accreditations to make a successful application for customs warehousing, Authorised Economic Operator (AEO) and other duty schemes and facilitations. Warehouse space, for example, is already running out fast as more and more businesses secure third party capacity to avoid incurring double tariffs and other costs. The process of gaining accreditation yourself can take 12 weeks or longer, so if this is something you think you’ll need to do, now is the time to start. Applying for AEO status often takes well over six months from start to finish, meaning it may already be too late to be ready on day 1 if there is no ‘no deal’.

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Look at your workforce and systems

Have you got enough people with the right skills? If you think you need to enhance your workforce, then make that a priority. For example, as an EU country, the UK hasn’t needed many customs and excise people before now. These skills are already in short supply, so companies may need to look outside the EU to find people with the skills they need. And don’t stop at your own company. In our experience, the greatest workforce risk can often be companies’ indirect exposure through their key suppliers; for example, those working in logistics, haulage and construction, particularly if they are highly reliant on agency labour. It’s also important not to overlook how your workforce currently moves around the EU. If your business model is dependent on people moving between the UK and the EU, particularly if providing paid or regulated services, can you still continue to operate from the UK if business visas are introduced and there is no mutual recognition of qualifications?

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Stay up to date

In parallel with these six examples, we’re advising businesses to consider taking action in the eight ‘no regrets’ areas. Perhaps the most important of these, is to plan to be agile. Track Brexit negotiations. Review the technical notices and guidance being released by UK Government and the EU. And, ensure that your contingency plan is both prioritised and comprehensive, kept live, and that the right action is being taken at the right time.

There are many unknowns and no one can be certain exactly what our relationship with the EU will look like post Brexit. But by acting now, companies can make sure they’re ready for business on the 30 March, whatever happens.

If you’d like to discuss any of the issues raised in this piece in more detail, please feel free to contact one of us or a member of PwC’s wider Brexit team.

Contact us

Katy Wallace

Risk Assurance Director, PwC United Kingdom

Tel: +44 (0)7740 241 138

Phil Brown

Senior Trade Adviser, PwC United Kingdom

Tel: +44 (0)7432 340 942

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