AML: Carry on Regardless

Business software post Brexit

BASDA’s Bill Pugsley examines some of the significant implications of the UK exiting the EU, particularly in relation to business software.

Throughout 2020, BASDA hosted a series of online events focused on Brexit and the impact of the transition on both business software and customers.

The overwhelming feedback from members was a desire to know more, and resulted in the formation of the ‘BASDA Brexit Working Party’ (BBWP), formed of key members focused on understanding the principal challenges of Brexit, including:

  • Upcoming critical dates and the implications of not being ready.
  • VAT, zero tariffs, custom interfaces post Brexit.
  • NI protocol.
  • Challenges for software providers to support trade.

The mission of the BBWP is to seek clarification on the issues that members and their clients need to plan for, as well as to collate published information, feedback and views relating to the end of the Brexit Transition Period (31 December 2020). Representatives of HMRC responded magnificently to the questions raised by BBWP, doing their utmost to respond within one working day of request.

Meeting (virtually) once a week, with continuous interim dialogue, the BBWP quickly identified that the Government had steadily been producing information since early 2020 about the potential impact of Brexit.

Clear and concise data was available in the event of a no-deal scenario; however, there was only vague information in the event of a deal being reached (because until the content of a prospective deal was known, it would be impossible to finalise arrangements). These resources and detailed sets of information associated with HMRC managed issues were circulated to members to act and make business decisions on.

By early December 2020 BASDA, along with other representative industry and trade bodies, were advising Government that even if a deal were agreed with the European Union and European Free Trade Areas (EU) there was unlikely to be sufficient time to make changes to critical business software that supported import/export tariffs, customs duties and changes to VAT on invoicing, etc.. To ensure customers were not adversely affected, business software solutions were modified to include as many different options relating to Brexit as possible to protect continuity of business.

Whilst these generated incremental costs, it meant that solutions were available to businesses to use from day one. This approach was particularly beneficial given that the UK finally reached an agreement with the EU on 24 December 2020 – two working days before implementation.

Until the Government ratified the Northern Ireland (NI) Protocol in December the implications of trade between GB (England, Scotland and Wales) and NI were not qualified. The subsequent implications of that protocol continue to have far reaching consequences and has been, by far, the most difficult part of Brexit to navigate.

NI is treated as still being part of the EU for trade purposes, which means that trade between GB and NI is subject to customs documentation and certification controls. This has seriously impacted many businesses who trade solely within the UK and who, until now, had no need or knowledge in dealing with import/export controls.

Post January 1, ongoing feedback from members, key commentators in the business trading community and customers, coupled with some stakeholders not taking proper accountability regarding their preparation along with conflicting information, resulted in a need for great clarity and conciseness. This required collaboration with the Institute of Directors (IoD) and the Association of Freight Software Suppliers (AFSS) through a series of online events that resulted in improved collation, interpretation, understanding and distribution of the likely impact on UK businesses.

Post implementation challenges remain. There have been problems interpreting and following the new rules. Trucks are being turned back at borders because of incomplete/inaccurate paperwork and the need for certification on certain products such as dairy or meat (with more to come). These recorded problems have since dropped from 70% in the first days to nearer 4% (end of January 2021). It is also right to recognise, however, that not every problem is due to Brexit; some are pandemic related, too.

Notwithstanding the UK government’s announcements and efforts to advise businesses of changes resulting from Brexit in 2020, BASDA members’ customers (i.e. UK businesses) are now relying on their software suppliers to answer detailed questions in respect of Brexit. This is causing an upsurge of as much as 70% in calls to support services with member companies, seeking information and clarification on matters that these customers could have found out themselves during 2020.

As of early February 2021, there are regulations that are only now just being understood. Where a business has previously sold digital services/products from GB to the EU they were able to do so under the VAT Mini One Stop Shop (VATMOSS scheme). This allowed a GB business to charge and recover VAT from the country where the service/product was sold (and apply the ‘local VAT’ rate) for HMRC to then offset with its counterparts in the EU.

At the very least the UK business now needs to register in at least one EU country, such as Republic of Ireland, and arrange to use the Irish VATMOSS scheme. If they are unable to do so, then they may need to register in each country within the EU into which they sell. However, many EU countries require that you must have a local (to them) VAT agent to operate on your behalf who accept responsibility for paying funds you generate to their local VAT collection service. These agents are typically requiring a considerable bank guarantee – not always a simple matter to obtain for smaller UK firms.

It is not just import and export of goods that have been impacted by Brexit. Apart from key business sectors, such as financial services, yet to be addressed, certain UK legislation remains intertwined with EU laws such that work still needs to be carried out in relation to non-trade specific matters. General Data Protection Regulation (GDPR) is impacted, and the UK’s Information Commissioner’s Office (ICO) are still negotiating with the EU to seek approval for its controls to ensure that British businesses can continue to maintain personal data of EU citizens living outside of the UK.

The Institute for Government has published a calendar detailing Brexit-related tasks that are still under discussion between the UK and EU, anticipating activities continuing for at least the next 10 years. Furthermore, unless there are significant developments, the NI protocol has no planned end date.

Brexit is not (fully) done. The BBWP (although strictly now a post-BREXIT group) continues to meet, arrange educational webinars and shares information with the rest of BASDA members. It will take time for both Government and business systems, and their supporting help-guides etc., to be fully updated to reflect the ‘new rules’.

The Customs Handling of Import and Export Freight (CHIEF) main system, although destined to be replaced by the Customs Declaration Service (CDS), is still operational. Logistics companies have to interact with both systems for the foreseeable future and both have had their issues dealing with Brexit, requiring hot-fixes for all parties.

BASDA has also reached out to end businesses to raise awareness that they should be suitably aware and therefore prepared to receive additional updates; this is especially important as a number of businesses plan such [updates] many months ahead and so greater agility may well be required in 2021.

Are we heading towards the perfect storm? Only time will tell. As more experience is gained, businesses will consider whether they wish to continue trading with certain markets if the (new) overheads for doing so are excessive. It is important that the UK Government undertakes to help businesses who are impacted by the significant changes, and as importantly, encourage them to find new markets where UK trade agreements have been signed.

• Bill Pugsley is Chairman of Lakeshore Data Management and Chair of BASDA’s Brexit Working Party. BASDA is the Business Application Software Developers Association – see www.basda.org

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