Brexit – current position and considerations

The United Kingdom has delayed its exit from the European Union, with the “current” date of withdrawal set to be 31 October 2019, and a transitional period lasting until 31 December 2020.

What is happening?

The ultimate relationship between the UK and the EU is still being decided, and progress made in this regard will change the ultimate impact that retailers and businesses in general will face from Brexit.

In our previous edition of Retail Compass in early 2019 we highlighted Brexit’s impact on retailers’ supply chains in particular, along with customs considerations such as further requirements for paperwork for goods and additional tax implications. While these remain very relevant, here we flag other considerations that retailers need to be aware of ahead of the looming deadline.

Why does it matter?

Supply Chains

In the run up to leaving the EU and during any transitional period, retailers may consider stockpiling goods to prevent large scale disruption to consumers. However, any decision to do so will undoubtedly be impacted by the costs of stockpiling goods and for warehousing in general – the latter costs are set to escalate with the Government’s proposal to raise business rates for warehouses in 2021 by up to 40%. Businesses could therefore see the costs for their warehousing space increases by up to 40%.

Labour

In December 2018 the Government released detailed plans regarding the settlement of EU citizens after Brexit. Whether the UK reaches a deal with the EU or not, EU citizens will be able to stay in Britain provided they apply for pre-settled status, or settled status if they have lived in the UK continuously for 5 years or longer. The current deadline for applying for settled status is 30 June 2021. The Government’s new skills points system, outlined in a white paper published in December 2018 could also make the recruitment of skilled, capable staff harder both from the EU and outside of it.

Contracts

At the beginning of this year, the High Court ruled that Brexit did not frustrate a 25-year lease held by the European Medicines Agency and therefore did not allow for them to be discharged from their entire c. £500 million obligation under the agreement. This ruling suggests that parties will not be able to discharge an agreement due to Brexit, unless specifically provided for in an agreement. The matter has been appealed to the Court of Appeal, and we expect that decision in the next 12 months.

What action should you take?

1. Consider lobbying the Government against  the proposed business rates increases for  warehousing prior to their introduction.
   
   
2. Continue to prepare strategies in relation to your customs procedures and adequately plan for additional costs incurred through taxes and/or other tariffs.
   
   
3. Ensure employees who are from the EU and are not UK citizens apply for (pre-)settled status ahead of 30 June 2021. Any hires from outside of the UK made after Brexit should be made in accordance with the new skills points system.
   
   
4. Review all existing contracts to identify potential risks, liabilities and complications that could arise from Brexit and draw up risk assessments based on the review. Ensure any new agreements entered into are “Brexit-proofed”.