Post-Brexit, UK-based SMEs are exploring trading opportunities with the rest of the world. Managers should take these steps to make the most of the UK’s free trade deals.
Revitalising international trade is an economic imperative for the UK. Since Brexit, the UK has signed trade deals and agreements in principle with around 70 countries, in addition to the EU. The majority of these are ‘rollovers’ – copying the terms the UK previously had under EU membership – with a few notable exceptions such as Japan and Australia. Joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, a free trade agreement (FTA) between 11 countries around the Pacific Rim, will also provide the UK with an FTA with Malaysia for the first time.
These trade deals present opportunities for SMEs. Brexit means that in many respects exporting to the EU is now the same as exporting anywhere else. For SMEs already getting to grips with post-Brexit EU trade, the experience gained can be applied to trading with other countries globally.
However, many SMEs are still deterred from international trade altogether due to lack of know-how and fears over the additional administrative burdens and higher costs. The following steps will help.
Identify and understand the opportunities
Researching target countries, identifying opportunities, and choosing destination markets are foundational steps for SMEs looking to trade internationally. The Department for Business and Trade (DBT) has a wealth of information and resources, including country-specific guides that can help SMEs identify new markets and understand duties, taxes and customs.
“When it comes to international trade, the first step in the export journey is understanding the origin of your goods or services and how they are classified in international trade,” notes Fergus McReynolds, Director of EU Public Affairs at the Chartered Institute of Export & International Trade (CIOE&IT).
SMEs first need to check that their goods are covered by a trade agreement and meet the rules of origin criteria. This means they will need to be either solely of UK origin or sufficiently transformed in the UK. The proof of origin required depends on the goods and where they are being exported.
“It is the market that you are shipping to that will dictate what is required in terms of evidence,” says Roger Marshall, a Trade and Customs Specialist at the CIOE&IT. “The EU is relatively light-touch, as for many products you can self-declare that goods are of UK origin. If you are shipping to Saudi Arabia, it is a whole different ball game. You will need a certificate of origin, verified by your Chamber of Commerce and the Saudi Embassy.”
To understand market-specific requirements, the government’s ‘Check how to export goods’ service is a helpful starting point. The gov.uk website also contains guidance on preferential rates of duty and rules of origin and offers a trade tariff tool to check which of the different types of proof are required and if there is duty or VAT to pay.
Get to grips with the technical aspects of trade
“Once you have established the qualification of your goods, you then enter the technical elements of trade – looking at your customs and declarations responsibilities, understanding the commercial relationship with your customers and your Incoterms,” notes McReynolds.
Understanding the complex paperwork trail for international sales is a critical component of developing an export strategy. Depending on the sector and the goods being shipped, additional documentation commitments may exist, so SMEs need to understand their specific obligations. The gov.uk website contains a step-by-step guide to exporting goods, which provides details on rules and any required licences and declarations.
Ruth Corkin, Principal for Indirect Tax at Hillier Hopkins and member of ICAEW’s Duties Committee, warns not to be caught out by VAT rules: “Don’t assume that just because you are outside of a particular territory, you won’t have sales tax responsibilities. A key example is the US, following the Wayfair Supreme Court decision.”
UK-based SMEs can be liable for sales tax in the US, as economic nexus legislation generally requires out-of-state sellers to collect and remit sales tax once a certain sales threshold has been reached. These requirements vary by state.
“If you are operating on Delivered Duty Paid (DDP) terms you will usually have a requirement to register for sales tax somewhere, particularly if sales are to consumers,” adds Corkin. DDP terms are where the seller assumes all responsibility for transportation, tariffs and taxes when importing the goods into the buyer’s country, until the goods reach an agreed-upon location.
Corkin continues: “Even if it’s B2B, have a look at the VAT regimes. Some are on a reverse charge basis and some are on a withholding tax basis, so you’ll get your remittance net of any tax – and that can be a shock if you’re not expecting it.”
Consider export finance
Once an export plan is in place, SMEs are advised to consider export finance. “Look to understand export credit,” advises Corkin. “If you’re sending goods by ship, things are taking longer, particularly with what’s going on in the Red Sea. So you have to be able to finance your exports. Look to see whether your bank offers export finance or find a bank that does.”
UK Export Finance also provides UK government-backed finance and insurance to help SMEs manage cash flow and payment risks and contains useful information and advice for companies taking the first steps in exporting.
Seek expert support and advice
In addition to the government resources signposted in this article, businesses can turn to the DBT’s UK Export Academy, which provides free training. Chambers of commerce and organisations such as the IOE&IT are also useful sources of guidance and training. Chartered accountants of course are also a great resource.
SMEs should equally consider using the services of customs advisers, freight agents and logistics partners, which can all help businesses successfully access new markets and stay on the right side of customs and duties regulations.
EU trading post-Brexit
The EU remains the UK’s largest trade partner, yet despite the business benefits of international trade, many SMEs are deterred by a lack of know-how and fears over higher costs and more administration.
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- From the glens to graphene: Getting the most from international markets
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