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What's the deal?

18 March 19

With the prospects for Brexit still unclear, the Journal attempts to draw together some of the latest official guidance relevant to law firms that not yet have looked seriously at the possible impact

by Peter Nicholson

Like many other businesses, especially in the SME sector, it seems that quite a few solicitors’ firms have not yet considered the possible effects of the UK leaving the European Union.

Certainly the polling of those attending the Law Society of Scotland’s Brexit roadshows indicated a preponderance of those who have not yet begun, or not really begun, to think through the implications for their practices, or what steps they might take to be Brexit-ready.

Smaller firms in particular may feel that the nature of their work is not such that it would be impacted by the sudden emergence of delays in goods entering or leaving the UK, or the imposition of tariffs at whatever rate, or even the loss of freedom to practise within the EU that would be a feature of the post-29 March world in the absence of a withdrawal deal or a postponement of Brexit day.

But as is highlighted by the Scottish Government’s guidance for business, “the problem with this ‘wait and see’ approach is that some business processes will change at the end of March regardless of Brexit – and other issues demand immediate attention well before 29 March. The business risks from not being prepared far outweigh the management time and costs from taking action now”.

Don’t assume you can’t plan when events are outwith your control, the Government advises: best to assume the worst (a no-deal Brexit), while hoping for the best.

Even if the exit date is finally postponed by a couple of months, as to which the House of Commons will decide in the week after this edition goes to press, time remains short to put any plans into action.

Health check

One thing any business can do is complete the Scottish Government’s self-assessment tool, accessible at the above web page. The online system asks a variety of questions about what you have and have not considered in relation to Brexit – with the option to answer “not applicable” to most of these if appropriate – and then refers you to published advice on what action to take where you have yet to do so. A test exercise by the Journal, answering as if a legal firm that had yet to consider most of the matters that might be relevant to it, produced an analysis containing a series of “actions to consider”, along with links to special events, sources of support (and funding where relevant), Scottish and UK Government advice and more.

Aside from advice for exporters and importers, the general guidance flags up the EU Settlement Scheme for any staff who are EU rather than UK citizens. Anyone holding this status has to register under the scheme – the proposed fee has been scrapped – by 31 December 2020, or 30 June 2021 if the Withdrawal Agreement takes effect, in order to protect their rights, and those of their family members, to continue to live, work and study (and to claim healthcare etc) in the UK after December 2020. The scheme, which fully opens on 30 March 2019, applies to citizens of EEA members Norway, Iceland and Liechtenstein, and separately to Switzerland, as well as to the EU27 states.

The advice could be relevant to any employee – anyone with a close family member or members who are EU citizens will want to make sure they have taken the necessary action. Helping your colleagues understand the new immigration rules could be a plus point for your business.

One potential effect of Brexit, especially in Scotland, is a labour shortage, the Scottish economy being more dependent on migrant workers than that of the UK generally. Anticipating this, and considering strategies to help retain existing staff and attract the right new recruits, could help underpin your business’s future. “Businesses with a robust plan can be more targeted in their talent attraction and have a clear story to tell,” the Scottish Government suggests. “Get involved early and become an employer of choice.” If the transition period takes effect, staff from EU27 countries will still be able to enter the UK until 31 December 2020. After that, as described in a Journal feature last month (“Control of our borders: the 2021 vision”, Journal, February 2019, 20), the UK Government’s new immigration policy is intended to come into effect, for both EU and non-EU nationals.

Data alerts

Another potentially problematic area is data protection, also covered by this month’s Corporate briefing (see p 28). The issue here is protection of personal data received from the EU (such as any EU-based clients), if the receiving business uses any cloud-based IT service to store or process the data. The Information Commissioner’s Office explains who is affected, and what to do about it, at ico.org.uk

Regarding financial services, the Financial Conduct Authority has plans in place to make sure that UK financial services continue working whether or not there is a transition period: www.fca.org.uk

Legislation will establish a temporary permissions regime to enable providers of financial services from the EEA to continue to provide services, and provide for continued protection of their customers, until they are able to obtain permanent FCA authorisation. With a deal, existing rights and protections will continue at least until the end of 2020.

The FCA however warns that “During this period of uncertainty there is a greater risk of scams.” It counsels to beware of all unexpected calls, emails and text messages; never to give out PINs or passwords or move money to another account; never to be pressured into acting quickly – a genuine bank or financial services firm won’t mind giving you time to think; and watch for the signs of bogus email addresses or other contact details. “If you have any doubts at all about what you are being asked to do, check with your provider. Always use contact details you can trust, for example the phone number on your bank statement or policy documentation.”

Problem, or opportunity?

As with most business situations, advantages are likely to accrue to those who proactively assess their market and their business model, and what new opportunities could open up. As the official advice puts it, “Rather than ‘hunker down’ and wait until the Brexit dust settles, does it offer an opportunity to rethink your business model? Can you turn Brexit to your advantage to carve out a new competitive position?”

Whether or not there is a direct effect on your practice, there is an opportunity to be proactive with SME clients who may be more exposed to the impact. For example, ask whether they have considered carrying out a business audit of their own commercial arrangements with third parties. Do any contracts contain references to the European Union, and if so, how do these need to be updated? Do they assume the UK remains a member state? What would be the effect of any tariffs coming into existence, or any new costs, delays, or restrictions on freedom to provide services? In what currency must payments be made, and who bears the risk of any change in exchange rates during the term of the contract? 

Will there be VAT changes? Again from Scottish Government advice, although the UK Government aims to maintain VAT rates and processes as closely as possible to current arrangements, sales to EU businesses will become subject to EU import VAT (currently zero-rated within the EU). Companies that sell within an EU member state to customers within that country may need to register for local VAT. In the event of no deal, HMRC has pledged to reintroduce postponed accounting for VAT – the system in place for intra-EU trade – in order to reduce the cash flow burden on UK businesses. 

What about securing new work, especially from the public sector? If the Withdrawal Agreement takes effect, the public procurement regulations will remain broadly unchanged during the transition period to the end of 2020, unless the EU regime itself changes, and the regime will apply until the conclusion of any procurement procedures ongoing at the end of the transition period.

In the event of no deal, the current regulations will be amended to ensure they remain functional. The majority of the regulations, including the different procedures available to contracting bodies, would remain the same; the key difference would be the need for them to send notices to a new UK e-notification service instead of the EU Publications Office. The requirement to advertise on sites such as Public Contracts Scotland would remain unchanged.

A reminder of resources available from the Law Society of Scotland appears in the first panel below; and several of our larger firms have online resources, both for business generally and targeted at particular practice sectors. In short, preparing and taking a proactive stance, even at this stage, may help you get on the front foot as and when exit day actually arrives.   

From the Law Society of Scotland

Also worth knowing

  • Essential information for UK nationals travelling to the EU, if there is no deal www.gov.uk
  • No visa would be needed for short stays (up to 90 days in any 180 days) in the Schengen area – the EU plus Switzerland, Norway, Iceland and Liechtenstein but minus Croatia, Bulgaria, Romania and Cyprus; but one may be needed for longer stays, and working there would probably require a visa and work permit.
  • Check the rules if your passport has less than a year to run.
  • Using your mobile phone may be more expensive.
  • It may become more expensive to make payments in the EEA from a UK bank account.
  • To drive, you may need an international driving permit, and a “green card” from your motor insurer if taking your own car.
  • Strict procedures would apply to taking your pet to another EU country.

 

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