It may be useful to include Brexit termination rights within your contracts giving you the opportunity to terminate a contract if it cannot be realistically fulfilled.
By Melissa Welch, Corporate and Commercial Associate
With all attention focusing on the current pandemic and the state of the UK economy in recent months, many business owners may have let the approaching Brexit deadline fall to the wayside. However, it still remains incredibly important to be prepared for the impact this is very likely to have on UK business as we move into 2021.
To quickly recap, the Brexit transition period ends on 31st December 2020, and after this point the UK will no longer effectively operate as a European Union member state. This will mean considerable changes for companies who import and export to the EU, but there’s also knock-on effects for businesses who don’t directly deal with other EU countries day-to-day too.
To help businesses prepare, I’ve shared some insight on the top five areas businesses need to examine in order to protect themselves against impending changes.
1. Supply chain: Currently supply chains across the UK and the EU are relatively straightforward as free movement of labour, goods, services and capital is allowed between countries. However, this may not be the case once we leave the EU. The impact on supply chains is still unclear at the moment as negotiators seem to be struggling to agree a trading agreement between the UK and the EU. With this in mind, business owners should develop a plan to future-proof their supply chain, by assessing the following elements:
- Thoroughly reviewing supply chains, specifically lead times and the impact on planning and margins this will have;
- Contact third-party providers, such as freight and other transport providers, for details of their Brexit plans;
- Identify key business interruption risks and prioritise the importance of addressing these; and
- Develop a contingency plan and regularly update this as Brexit negotiations progress and develop.
2. Employees: If you employ people from the EU (EEA nationals), they’ll need to apply under the EU Settlement Scheme and prove their identity to be able to continue working in the UK post-Brexit. If the UK has a No Deal Brexit, they’ll need to have done this before 31st December 2020, but if the government agrees a deal then employees will have until 30th June 2021.
3. Exporting: It’s currently tariff-free to export within the EU, however it’s uncertain whether a trade agreement is going to be made between the UK and the EU. If no agreement is put in place, the UK will be considered a ‘third country’ in regards to its trading status and as a result would face the associated EU tariffs and customs checks. This could add extra costs as well as longer lead-times for businesses, so businesses will need to consider the implications of this and how they can adapt their business if necessary.
4. Using personal data: If a business shares personal data with organisations in the European Economic Area (EEA), they will need to take steps to ensure they continue to comply with data protection laws if the UK leaves the EU without a deal. For UK businesses that only share data within the UK, there will be no change.
5. Contracts: It’s likely that some contracts will have been in place before Brexit was even on the horizon, so the risks and potential additional costs associated with Brexit will not have been planned for. It’s important for businesses to spend time reviewing and potentially amending contracts they hold with commercial partners, or even looking for new partners.
Also, be sure to examine international contracts with particular focus on distribution agreements and liability for damages and penalties, taking into account potential changes in trade rules. For example: If tariffs or VAT rules change, is it clear who bears the new costs?
There’s also the risk of the exchange rate undermining the economic value of a contract.
It may be worthwhile reducing the terms of contracts to renegotiate if necessary, in light of Brexit changes. This gives both businesses freedom to decide whether the contracts are workable post-Brexit. Similarly, it may be useful to include Brexit termination rights within your contracts giving you the opportunity to terminate a contract if it cannot be realistically fulfilled.
The overarching message to businesses right now is that preparation is key in all these situations – even when there’s so many uncertain variables.
Whilst COVID-19 may have stalled conversations around preparing for Brexit, it’s essential for businesses to kick-start planning and negotiations again.
At Primas, we understand that preparation takes time and that businesses may need professional support to ensure they have everything covered. Futureproofing may also present new opportunities too so make sure to give it the time and attention it deserves. If you’d like to speak to one of the team for some advice on this subject, please contact me directly on firstname.lastname@example.org.