Brexit Deadline is Here: What Now?

Reports show the U.K. remained committed to ending its transitional period with the European Union (“EU”) as scheduled on December 31, 2020, and a deal was finally struck on Christmas Eve despite a new strain of COVID-19 that sent parts of the region back into lockdown.

Negotiations with the EU remained stalled until nearly the 11th hour, and without a last-minute concession by either the UK or the EU, the UK was looking positioned to depart with no trade deal with the EU. This uncertainty meant it wasn’t possible to say how specific regulations will impact your business and it’s not always easy to plan for the unexpected, but that doesn’t mean you and your customers can’t take practical steps to protect and prepare your business. In reality, needing an adaptable plan is the only guaranteed Brexit certainty, even now.

The Windham Brannon team talked with their AGN International partners, Dafferns Chartered Accountants in Coventry, England, to learn more about what they’re hearing and how it could impact you and your customers.

What’s the backstory on Brexit?

Having spent more than 20 years after World War II trying to join what is now known as the European Union, Britain finally joined the EEC or “Common Market” in 1973, seen by many as the precursor to a “United States of Europe.” However, Britain remained an uncomfortable, perhaps reluctant, member, having declined to join the Euro.

After decades of Euro Sceptic divisions in British politics, matters came to a head in 2014 when then-British Prime Minister David Cameron attempted to win further concessions and a better deal from the EU for Britain. The EU knew the consequences of not giving Cameron enough to calm the Euro Sceptic element within his coalition government but chose to send him away comparatively empty-handed.

The UK held a general election in 2015, and Cameron’s Conservatives won with a strong majority. Within their manifesto was a pledge to hold a referendum on whether the region should leave or remain in the EU. Despite thinking Cameron otherwise, 17.4 million Britons voted in June 2016 to leave the EU. Parliament backed the European Union Bill in early 2017 and subsequently triggered the Article 50 process with an exit deadline of March, 29 2019.

In the wake of the referendum loss, Cameron resigned and Teresa May took over as prime minister. While May supported the effort to stay, she remained committed to the Brexit referendum. Her government called another general election in the summer of 2017 hoping for a bigger majority to underwrite her Brexit plans, but her Conservative party’s majority disappeared. Her weakened government limped on, with the possibility of a No Deal Brexit on March 29, 2019, seeming more realistic.

The March 29, 2019, deadline was extended and May ultimately resigned as Prime Minister. Boris Johnson took over in August, pledging he would “Get Brexit Done.” But with no majority in Parliament, he was powerless to move forward and a stalemate resumed by the fall of 2019.

Another general election was called in December 2019, and Johnson’s Conservatives won for the fourth consecutive time. The Brexit deal passed, and the UK formally left the EU on January 31, 2020. The UK then entered a transitional period of 11 months ending December 31, 2020, to negotiate a new trade deal with the EU, or face another cliff edge No Deal Brexit.

How is Brexit expected to impact customers and market share?

Take Dafferns as an example. They are based in Coventry in the centre of the UK, where they have a particular strength in advanced engineering in the motor industry, including Jaguar Land Rover, Aston Martin, and BMW. Tens of thousands of jobs in the Coventry area are underpinned by Jaguar Land Rover and the ecosystem of businesses within their supply chain. A No-Deal Brexit could be fatal to their regional economy if these large multinational businesses relocate in the EU.

What is the expected impact on EU suppliers?

They do not expect too many problems with the flow of imports from the EU, but there will be more paperwork and tariffs. The problem will be with UK exports and, in particular, goods exported which may have to pass through multiple EU countries. This will cause massive problems short term.

What will be the most significant potential tax implications of Brexit?

They generally are less concerned about the tax consequences of Brexit and much more apprehensive about the inevitable huge rises in UK taxes to fund the ongoing economic impact of COVID-19.

Who are expected to be the winners and losers of Brexit?

Britain will be the loser short term; however, the USA and other countries can thrive long term if there is a trade deal with the EU.

Any parting thoughts on the future?

The 2016 Brexit referendum caused massive divisions in the UK, with friends, families, and work colleagues split into two diverse camps: Leave or Remain. Public protests and divisions appeared to be on the point of creating unbridgeable rifts amongst the British people, regionally, socially, and economically.

A 2016 poll showed a slight lead for Leave over Remain supporters at 52% compared to 48%. We watched a similar situation develop in the United States during the 2020 election, where 52% of the population supported Biden, while 47% supported Trump. (If it is any comfort to the U.S., they’ve seen time heals these rifts.)

Four years after the 2016 Brexit referendum with no trade deal and a hard No Deal Brexit coming by December 31, Britons are looking forward to the future. Leave or Remain no longer matters; we are united in making a success of whatever the future holds.

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