Karen Shaw, Group Financial Controller at Johnstons of Elgin, the UK’s largest producer of luxury cashmere and fine woollens, knows better than most how hard trading has become in recent years.

Johnstons of Elgin exports more overseas than it sells in the UK. Since Brexit created a ‘hard border’ between Europe and the UK, doing business has become more complex, time-consuming and costly.

“We have quite a complex supply chain, including outsourcing some textile work to Italy. We are taking goods out of the country then back into the country and therefore using things like outward processing relief and other customs procedures, which can be quite challenging to implement because the documentation requirements are quite strict,” chartered accountant Shaw says.

Post-Brexit, this has become the biggest challenge for the business. Shaw finds it difficult to ensure the company’s suppliers give them the correct documentation to avoid paying duty. 

It has also created major issues for Mark Jennings, Finance Director of Ishida Europe, part of a Japanese food packing machinery company. 

The UK-based manufacturing arm buys materials from Japan and exports goods into Europe, the Middle East and Asia. Its turnover is made up of around 50% from the EU, 30% from Middle East and Africa and 20% from the UK. 

“Half of my business used to be relatively straightforward. It is anything but relatively straightforward now,” says Jennings, who has worked for the company for 18 years.

He doubts a Japanese company would invest in the UK now, given that it is outside the EU trading zone and its influence. “If Japan were looking to invest today rather than 40 years ago, I would be surprised if the UK with its lack of access to the EU would be anywhere on the list,” he says.

Customs manoeuvres

Dealing with international transport carriers is another challenge for Johnstons. International transport carriers quite frequently invoice the company for duty it doesn’t owe, as the carrier failed to correctly pick up the statement of origin from the invoices. Shaw says she often comes up against different interpretations of the rules from different EU countries, which further complicates matters.

Jennings also points to the rising costs of international transportation as a major headache for Ishida. With six-month lead times, he is often having to speculate what the transport costs will be in the future.

Ian Worth, Director, Customs at accountancy firm Crowe, says: “The opportunities touted at the time of Brexit – for better links for the UK with the ability to make its own trade arrangements with other countries – haven’t produced anything of note. There has been a lack of meaningful development, particularly in markets that are not significant for the UK compared with the market that we had, and to a large extent still have with the EU.”

Geopolitical conflicts

Johnstons imports raw materials from Mongolia, China and Australia. With conflicts in the Middle East causing delays to shipping, this has also increased costs for the business. It’s not just an increase in shipping costs; payments due are linked to goods arriving at their destination on time, so any delay could result in delayed payment or a cancelled sale.

Shaw says: “That actually becomes quite hard from a cash flow planning point of view, and it is also hard for our suppliers. Because we buy in foreign currency, you also have to factor in the impact of the foreign currency as well. So, the implications of a supply chain issue in terms of timing can be quite far-reaching.”

New government, renewed hope?

Shaw is hoping to see greater investment in government departments, particularly in HM Revenue and Customs (HMRC), from the new UK government, but she isn’t hopeful of a rapid improvement in HMRC’s service.

Although Johnstons, one of the last few remaining vertical mills in the UK, is a business with a £100m turnover, it is not entitled to a named adviser at HMRC. “It’s unacceptable. We need to be able to get the support and the advice so that we can ensure that we are complying with the rules – and we want to comply with the rules,” Shaw says.

Jennings endures the same challenges in contacting HMRC: “HMRC’s level of resourcing has been at a critical level for some time. It’s very difficult to liaise with them.”

Worth underscores this as a major problem, too. “We’re seeing different government departments not really working cohesively with each other, with miscommunications between HMRC, Defra and the Border Agency in particular.”

With the newly appointed Labour government strapped for cash, Worth says that one of the acclaimed benefits of Brexit was the UK’s ability to retain for its own purposes all the customs duty collected as import, which is sitting at around £5.5bn.

“This is a potential opportunity for the UK to target customs duties as a revenue earner. It is within the responsibility of the Chancellor to use customs duties as a means of revenue, while at the same time protecting UK manufacturing,” says Worth.

He also thinks the UK should appoint a dedicated Minister for Manufacturing. “It’s time to look at what’s needed to regenerate areas of British manufacturing. Keeping in mind that if we don’t manufacture here, we have to import and there’s a cost to that, both financially and environmentally.”

Overall, Shaw wants to see more simplification and better guidance on trading rules. “It’s also being clear on the guidance as well because there’s too much, particularly around the customs area. It’s so vague and everybody interprets it differently.”

Jennings agrees that the difficulty in accessing the right information from the government is holding back Ishida from applying for grants in a range of areas.

“It’s not whether the grants and support is there or not – it’s just how accessible and clear they are. Outside of the largest companies, most companies don’t have time or resources to research these kinds of things,” Jennings says.

One of the most pressing issues for companies is the easing of border issues and greater clarification of the rules. If the new government could take positive steps quickly on this front, it may ease some of the immediate pain. But it’s still likely to be a long road ahead until British business feels more confident about the trading outlook.