Get Brexit Ready Says AIB

/ 21st March 2019 /

Catherine Moroney, Head of Business Banking in AIB, explains how businesses need to prepare for the direct and indirect impacts of Brexit

Is AIB concerned about the risk of no-deal Brexit?

We believe that the risk of a no-deal Brexit has increased significantly as a result of the lack of political agreement within the UK Parliament and the rejection of the Withdrawal Agreement.

We are very concerned about the level of planning that businesses have undertaken to date. AIB’s Brexit Sentiment Index suggests that over 50% of businesses have yet to start planning for Brexit.

While it is challenging to plan for such an uncertain outcome, we would encourage businesses to consider the worst case impact on their business and identify the key vulnerabilities in their business.

Even in the case of an extended transition period, there will likely be some form of governance on product movement between Ireland and the UK at the end of that period, hence preparing your business for this now will be time well spent.

Which businesses and sectors should be concerned about Brexit?

All businesses, irrespective of sector, scale and geographic location, should be concerned about the impact of Brexit. We talk about direct and indirect impacts. Businesses that trade directly with the UK, either importing or exporting to/or via the UK, and firms that are reliant on UK visitors or contracts within the UK, have a clear direct exposure to the UK and to Brexit. Many of these businesses have been accustomed to managing the currency risk associated with this trade over the years. However, Brexit now poses significantly more challenges.

The indirect impacts are significant too. Ireland has a supply chain reliance on the UK, as almost all businesses buy goods and services from Irish suppliers that originate in the UK or via the UK. This means that Brexit touches all businesses and ultimately all Irish consumers.

In addition, a no-deal Brexit would have a negative impact on the Irish economy overall. While some businesses and sectors will benefit, the net effect will be negative in the near to medium term. As such, businesses that rely on the domestic economy and strong consumer spending would be impacted by any negative impact on the economy.

What are the key risks that businesses should consider?

Essentially, Brexit and a no-deal Brexit in particular will add cost to Irish business. It’s important for businesses to understand where additional costs may impact their operations, what impact this may have on their cash flow, and what their working capital requirements may be. This will enable people to plan and make key decisions. A few area that are important to review:

Supply Chain Review your supply chain, whether you are directly or indirectly impacted. Discuss your concerns with suppliers, particularly if you have suppliers within the UK that are strategically important to your business. Understand what their Brexit plans are and how they might minimise the risk to your business. You may need to identify alternative suppliers outside of the UK, or consider how your business could manage increased costs – what can be passed on and what you may need to absorb.

Currency Risk Exchange rate volatility is a key risk for those businesses trading directly with the UK. We encourage all businesses with an exchange rate risk to discuss with their bank the appropriate solutions to mitigate their foreign exchange risk. This will help protect their revenue and provide greater cost certainty.

Customs & Tax In a no-deal Brexit scenario, the UK will become a third country from a trade perspective, no longer part of the EU Single Market or Customs Union. Businesses importing into Ireland from a non-EU country are liable for Import VAT and Customs Duties where applicable.

There is also considerable time and cost associated with customs administration. Many businesses, in particular small businesses, will require the support of a customs agent. Businesses exporting to the UK will also experience similar procedures, costs and challenges.

We are strongly encouraging customers to talk to Revenue about how they may be impacted by Brexit and what they need to do to to manage customs requirements and liabilities. You may need to consider the impact that customs liabilities will have on your working capital and then discuss the appropriate solutions with your bank. Early engagement is key to ensure that from 30 March 2019 in a no-deal Brexit scenario businesses can continue to move goods in and out of Ireland.

What can businesses do now?

I would encourage all businesses to take the following three steps to assist them in reviewing how Brexit may impact their business and in particular their working capital and put a plan in place:

Understand your business exposure to Brexit by taking our online Brexit Ready Check, a quick, useful and free tool, which we have developed to help support SME customers.

Talk to your bank if you feel that Brexit will increase your working capital requirements. While you may not yet require additional finance, it is good to start the conversation. We have a team of 21 local Brexit Advisors who are in place to support you.

Get advice. There are a range of supports available from your Local Enterprise Office, Enterprise Ireland, Bord Bia and InterTradeIreland that you should consider.