The effects of outsourcing your Supply Chain after Brexit
A little over a year has passed and Brexit is still causing many disruptions amongst industries. Virtually any company that must maintain a streamlined Supply Chain cannot deny the strong effects Brexit has had within the industry. Companies must deal with rising issues such as changing Import/Export regulations, restrictions concerning the free movement of people and managing supplier relations. One of the most predominant effects faced by companies concerns the increase in complexity in cross border customs/tax regulation. This is especially relevant in the Transport and Logistics sector.
The new customs/tax regulations force companies that conduct trade between the UK/EU to reassess their strategic decision-making regarding the clearance of goods and paying VAT (this includes any additional tariffs when selling to EU customers). Doing so is necessary, but will result in increased transport costs, extensive paperwork, and prolonged delivery times. Companies can also choose to regain control by acquiring warehouse space within the EU to function as a fulfillment center and vice versa. This decision will, however, implicate high opportunity costs (Williams, 2021).
In addition to the increase in complexity concerning customs/tax regulations, UK regulatory compliance now exists separate from EU regulatory compliance. The most essential requirements in terms of environmental issues, safety, and health will not change substantially. However, there are most certainly some major changes applicable to UK/EU product compliance regime (Grist & Erasmus, 2021). Two of the most significantly changing instances are:
- The introduction of a UKCA mark and a UK Declaration of conformity for market entering products.
- A shift in obligations and duties between ‘manufacturers’, ‘importers’, and ‘distributors’
Brexit has caused many Supply Chains to have their weaknesses exposed as a result from the above stated effects. This does not mean, however, that there are no opportunities for the sector. Experienced businesses know that problems create opportunities for improvements. Organizations are adapting by reassessing their current Supply Chain operational processes. This is vital for improving post Brexit. Companies must reevaluate their current transport activities and adjust their strategies in accordance with the Brexit effects and regulations. One of the ways of doing so is Outsourcing.
According to Investopedia (2021), the definition of outsourcing is defined as: ‘the business practice of hiring a party outside a company to perform services and create goods that traditionally were performed in-house by the company’s own employees and staff.’.
In essence, companies that outsource elements of their Supply Chain can achieve benefits such as:
- Reducing Operational Costs
- Increasing Flexibility
- Mitigating risks
- Creating opportunity for innovation
- Streamlining operational processess
Working with experienced professionals that deal with outsourcing daily is an effective way to quickly increase your company’s efficiency. Some organizations outsource their entire Supply Chain to expert companies that are up to date with the latest knowledge. This allows them to tackle the complex issues concerning customs/tax changes resulting from Brexit. Others merely outsource elements of their Supply Chain to increase their proficiency in that specific area. For both cases, Moduslink is your partner of choice and can provide you with customized solutions that fit to your needs, increasing your needs and allowing you to anticipate growth, streamlining your costs, increasing your revenue, and building brand loyalty.
If you are a company that is struggling to effectively resume your business between the UK and EU, allow Moduslink to relieve you of your worry by offering a wide variety of outsourcing solutions backed by industry experts. Our solutions allow you to improve your Supply Chain by implementing:
- Packaging, Kitting & Assembly
- B2B and B2C Fulfillment
- Reverse Logistics
- Warehousing and Distribution
- Delivery and Logistics
- Location optimization
Gain control over your Supply Chain and experience the benefits from Outsourcing through Industry experts.
KPMG International. (2017, February). Brexit: The impact on sectors. https://assets.kpmg/content/dam/kpmg/uk/pdf/2017/03/brexit-the-sector-impact.pdf
Investopedia. (2021, May 2). Why Companies Use Outsourcing. https://www.investopedia.com/terms/o/outsourcing.asp
SchoenHerr, T. S. (2010, January). Outsourcing Decisions in Global Supply Chains: An Exploratory Multi-Country Survey. International Journal of Production Research. https://www.researchgate.net/publication/247162714_Outsourcing_Decisions_in_Global_Supply_Chains_An_Exploratory_Multi-Country_Survey
Williams, C. W. (2021, March 26). How is cross-border e-commerce and distribution adapting to Brexit? KnightFrank. https://www.knightfrank.com/research/article/2021-03-26-how-is-crossborder-ecommerce-and-distribution-adapting-to-brexit
Grist, E. G., & Erasmus, P. E. (2021, January 1). Brexit: Product Compliance and Liability implications. Bird & Bird. https://www.twobirds.com/en/news/articles/2016/uk/brexit-product-compliance-and-liability-implications
The European Union (EU) has established new rules for all imports effective July 1, 2021
The European Union (EU) has established new rules for all imports effective July 1, 2021. The new rules, collectively called Import One-Stop Shop (IOSS) are an attempt to both simplify VAT collection and level the playing field between EU and non-EU players. Currently EU and non-EU sellers selling goods online to EU consumers can import the goods into the EU, directly to the consumer, import VAT-free if the consignment of good(s) is valued at or below €150. This ends 1 July 2021 and all imports will be subject to EU VAT. Sellers and facilitating marketplaces can collect import VAT on import consignments valued up to €150.
The current regulation allows for a low-value consignment VAT exemption, known as the “low value consignment stock relief”, and was intended to relieve EU member countries’ customs from the burden of checking large volumes of packages for small amounts of potential tax revenues. An unintended consequence of this exemption left EU-based sellers at a major price disadvantage since they must charge VAT on goods that are dispatched from within the EU. The exemption has also encouraged large-scale fraud by sellers deliberately under declaring the values of goods to escape the import VAT bill.
The EU has decided to eliminate the current import VAT exempt threshold. Starting July 1st, 2021, EU and non-EU sellers will be required to charge VAT at the point of sale for consignments of €150 or below.
We asked Michel da Silva, an e-business expert at ModusLink to help explain this new regulation.
Q: What will this mean for a typical non-EU seller?
A: Non-EU sellers, including from the UK, will have to appoint a VAT Intermediary to act as their agent in a similar way as to a Fiscal Representative or to use Merchant of Record, who will take care of payments, taxes and compliancy.
Q: Can you give us an example to better understand the new regulations effect on an average non-EU company?
A: Let us consider the VAT obligations today and post-2021 reforms for an example non-EU seller, Client ABC from China:
Today: Client ABC can sell and ship consignments under €22 to EU consumers VAT free. Over that limit, then either the customer or Client ABC has to pay import VAT at the rate of the country of import. To provide a good seller experience, Client ABC pays the import VAT on behalf of its customers.
After July 1st, 2021: Client ABC will charge VAT at the point-of-sale and declare it in an IOSS return if not exceeding €150. They are then exempted from paying import VAT at customs (does this statement make sense, why would the VAT be chaged at point of sale, but then are exempt from paying it?). Client ABC may also declare sales to customers around the EU via its IOSS return, as discussed in the above section (this statement is also not clear).
Q: What about transactions for items greater than €150 for non-EU sellers?
For consignments exceeding the €150 IOSS threshold, the import VAT must still be paid to customs. This could still trigger a regular VAT registration in the country of importation for Client ABC from above example if they wish to sell the goods locally or to consumers in the rest of the EU.
Q: What is a Merchant of Record (MOR) and why would companies use them?
A: A Merchant of Record is a legal entity selling goods or services to a cardholder on a company’s behalf and to whom the cardholder owes payment for such goods and services. The MOR is the responsible party for meeting the IOSS regulations in the EU. The MOR processes all payments and take on those transactions, including collecting sales tax (should this be VAT instead?), ensuring payment card industry (PCI) compliance, and honoring refunds and chargebacks, while acting on behalf of the client. Businesses can choose to be their own merchant of record, but MOR service providers exist to take the burden of payment processing and compliance away from those who prefer to spend their in-house resources elsewhere, such as growing their brand or investing in new product development. Using a MOR is a very good way to to ensure you are in compliance with the law as the MOR can manage the entire process for you.