The Brexit Withdrawal Agreement has been rejected by the UK Parliament for a second time, and the chances of a no-deal Brexit have increased exponentially.
There’s also an increased possibility of a delay to Brexit altogether; any extension will be on the EU’s terms and what will actually happen on 29 March won’t be apparent until 21 March at the earliest.
In the meantime, Kiwi businesses exporting to the UK will need to start some pre-emptive planning to negate any negative impact this will have on their operations in the UK and Europe. They also need to consider what disclosures they should be making in their annual reports, NZX announcements and financial statements.
“The biggest and most obvious impact will be changes in border controls; Kiwi exporters will be faced with the prospect of finding efficient ways of getting their goods into the UK,” says Mark Hucklesby, Partner and National Technical Director at Grant Thornton New Zealand.
Once they’re there, distributing those goods throughout Europe and vice versa will also be problematic. If you have a wine business that exports to a single consignee in London, who then distributes your products across Europe?
The traditional hub and spoke distribution model may no longer be fast or cost effective, regardless of whether the hub or the spoke of the Kiwi business operation is situated in the UK.
Some of the not-so-obvious impacts will be on companies’ reporting obligations; New Zealand businesses that trade in the UK will still need to forecast operating results and cash flows, but the challenges posed by potential changes to cross-border regulations will seriously hamper business’ ability to do this accurately.
For example, EU tax exemptions and relief will no longer apply to UK operations under a no-deal Brexit; this could happen overnight, resulting in some deferred tax liabilities that have previously gone unrecognized.
Other forecasts required under New Zealand equivalents of International Financial Reporting Standards [NZ IFRS] include fair value management, impairment of assets and possibly going concern assessments. In some ways the possibilities are endless and the influence of Brexit is going to be a huge challenge for everyone in the accountancy profession, whether they’re preparing financial statements or auditing them.
“This is a complex issue and business directors’ and owners responses can’t be glib or simplistic; the potential consequences – both direct and indirect – need to be thoroughly thought through, and subsequent insights need to be clearly reflected in all forecasts and projections”, says Hucklesby.
Fourteen percent of New Zealand’s total foreign investment is with the UK (over $30bn); latest statistics put Kiwi exports to the UK at $2.8bn, down from $3.1bn in 2016.
Mark Hucklesby
Partner and National Technical Director
Grant Thornton New Zealand
T +64 9 922 1381
E mark.hucklesby@nz.gt.com