Import and export business update – Preparing for January 1st, 2020

Whether you import goods to the UK or export from the UK to the EU, this post contains key updates you need to be aware of, and for many, take action on before the end of the year.

After the post-Brexit transition period comes to an end, there are specific changes that EU businesses not currently established in the UK will need to make when moving goods or offering services.

While the primary focus in this post is for overseas businesses who trade with the UK market, there is still pertinent data that UK-EU importers and exporters can benefit from knowing before the changes take effect on January 1st, 2020.

This update offers some practical steps you can take to make sure your business is ready

UK – EU Trade Agreement

As discussions are still ongoing, it is uncertain whether a trade agreement with the EU will be reached before January 1st, 2021. Regardless of whether or not a deal is in place, there will be changes to the following:

  • How businesses provide services within the EU Market
  • The way goods are exported and imported
  • The hiring process for those looking to hire people from the EU

While the government has already launched a major campaign to help businesses prepare for the forthcoming changes, there are still many who need to take immediate action to ensure their business can keep moving.

In the next section of this post will break down the specifics relating to exports, imports, and customs as they stand at present. These changes apply to importers and exporters who work in the EU trading with the UK, and those in the UK trading with the EU.

Customs Information

You will essentially be using the same export and import processes used for non-EU countries without a trading agreement with the EU or UK. In summary, when moving goods across the border, this will mean:

  • The carriers will need specific information to move your goods between territories
  • Import and export declarations are needed to enter or remove goods into or from the UK or EU customs territory

If you already have a UK trading partner, it will typically be the trading partner who makes the UK declaration. Still, the specifics of what you need to do will ultimately depend on the arrangements you have in place with any customs representatives, carriers, or trading partners. If you do not have any of these provisions in place, then you need to get a UK representative to act on your behalf to deal with customs for you.

For a more comprehensive overview of the specifics for those looking to buy or move goods from the UK after Brexit, the government has produced a PDF that can be accessed here.

Other customs-related resources that could be useful to you are linked below:

VAT Information

There will be changes to VAT IT systems and import VAT on parcels you need to be aware of. For organizations selling to UK buyers, you may also need to notify customers of any changes to charges before January 1st, 2021.

If you sell to UK buyers and are based outside of the UK, you will need to pay Import VAT.

  • For goods worth £135 or less, you are responsible for the Import VAT
  • For goods over the £135 threshold, the buyer will need to pay the Customs Duty, Import VAT, and if applicable, any Excise Duty

Aside from the above, key changes are being made to VAT IT systems.

  • A new digital service for the checking of UK VAT numbers will be introduced
  • There will be changes to how you claim VAT refunds for UK business expenses
  • If you sell digital services, there are key changes* to how you pay VAT on services you provide to customers in the UK.

Service-based Businesses

If you operate a service-based business, you will need to check how these services are now going to be regulated and how professional qualifications gained in the European Economic Area and Switzerland will be recognised in the UK after January 1st, 2021.

This is particularly important if any of the below apply to your business.

  • If you send your employees to the UK to do business on your behalf
  • If you are planning to merge with a UK-based business
  • If you have subsidiaries or branches in the UK
  • If your employees provide services within or as part of a regulated profession
  • If you operate within a service sector in the UK

If you employ UK nationals that need a professional qualification to practice in the EU, then you must ensure their qualification is still recognised by the relevant EU regulator.

For further reading and the most up to date guidance on the relevant recognition of professional qualifications, please refer to this section of the government website.

Selling Manufactured Goods

If you manufacture goods that are sent to the UK market, there are going to be key regulatory changes* to approvals, testing, and labelling that come into force on January 1st, 2021. Knowing which rules apply to you depends on the type of goods you manufacture.

*At present, these changes only apply to placing goods into the Scottish, Welsh, or English markets. For Northern Ireland, the guidance will likely be different. If you plan to place manufactured goods in the Northern Irish market from the EU, further guidance can be found here. If goods are coming from the GB region, further guidance can be found here.

 The legislative framework is comprehensive, and for some, rather difficult to follow in terms of knowing which regulatory framework is applicable to your business. If this is something you need clarity on, our company and commercial team here at OGR Stock Denton can help.

Changes to CE Markings

This is another major consideration for those selling manufactured goods to the UK market. As part of the preparations needed, you should also check whether or not you need to make changes to your conformity assessment or markings before or after January 1st, 2021.

Before this date, a Pi mark, wheel marking, or CE mark have always been used to place goods onto the UK market. Going forward, the UKCA mark is going to be the conformity assessment marking for most of the goods that today use the CE Mark.

Although for certain products, the CE mark is going to be accepted in the UK until January 1st, 2022, it is vital that your business readies itself as soon as possible to use UKCA markings. I can also confirm that at this point, it will be possible to use both the UKCA and CE marking, as long as you are completely compliant with both EU and UK regulations.

According to the latest government guidance, those businesses that need to use the UKCA mark immediately from January 1st, 2021, include those where all of the following applies:

  • If you are covered under legislation that requires UKCA marking
  • If a conformity assessment has been undertaken by an official body in the UK, and you have not transferred your CA files from the UK body to the EU equivalent prior to January 1st, 2021.
  • If you require a mandatory conformity assessment by a third-party

Understanding Your Changing Legal Responsibilities

For manufacturers, your legal obligations will largely remain unchanged from January 1st, 2021. However, your regulatory requirements, VAT, and customs processes will most likely be affected and require some key changes in order to remain compliant.

For UK suppliers and distributors, it is essential to confirm whether it will be your supplier or your business that will become an ‘importer’ from January 1st, 2021. If it is your business who will be bringing goods from outside of the UK and placing them into the GB market (the rules for NI are going to be slightly different), then you will become an ‘importer’. Here’s a quick summary of how your legal responsibilities could change, along with some of the practical steps you may need to take.

  • Ensure the right conformity assessment procedures have been undertaken and that all conformity markings are compliant under the new legislation.
  • Making sure that all labels for goods include your company name and address – it is possible to provide this information on accompanying documentation until December 31st, 2022.
  • Make sure your business has a system to store all conformity declarations for a period of ten years.
  • Ensure the manufacturer has produced the correct technical documentation for their goods and that all labelling is fully compliant.

Although we are already well into the final quarter of the year, I do expect there to be more changes. While I intend to keep you updated in the form of further posts, you can also sign-up to receive emails directly from the government site here.

If you would like to get guidance on whether or not your goods will be affected and confirm the steps you need to take in order to become compliant with the new regulations, please contact one of our commercial solicitors today for further advice. 

Maximum Government-backed loan amount for larger businesses increased to £200 million

The Government has announced an increase in the maximum amount that larger businesses can borrow under the Coronavirus Large Business Interruption Loan Scheme (CLBILS) from £50 million to £200 million.

CLBILS loans are offered on normal commercial terms, but are backed by a Government guarantee worth 80 per cent of the amount borrowed. They can be accessed through the 12 accredited lenders for the scheme by the British Business Bank.

The increase will come into effect from Tuesday 26 May 2020 and will mean that larger businesses can borrow up to 25 per cent of turnover, subject to a maximum of £200 million.

At the same time, the Government has introduced restrictions on dividends, share buybacks and executive pay for firms benefiting from CLBILS loans of more than £50 million.

The restrictions will also apply to large businesses accessing the Bank of England’s Covid Corporate Financing Facility (CCFF).

More details about these restrictions are expected to be set out by the British Business Bank on 26 May 2020.

Coronavirus Future Fund open to applications

The Future Fund, which offers convertible loans of between £125,000 and £5 million to innovative companies facing financial difficulties as a result of the COVID-19 pandemic has opened.

The fund is designed to support UK-based companies that have acquired at least equal match funding from private investors.

Aimed specifically at businesses that typically rely on equity investment, the fund is a lifeline for firms that cannot access other forms of Government business support because they are either pre-revenue or pre-profit-based.

To be eligible a business must:

  • be UK-incorporated – if a business is part of a corporate group, only the parent company is eligible
  • have raised at least £250,000 in equity investment from third-party investors in the last five years
  • not had any of its shares traded on a regulated market, multilateral trading facility or other listing venue(s)
  • have been incorporated on or before 31 December 2019.

Businesses will also need to demonstrate that at least one of the following is true:

  • half or more employees are UK-based
  • half or more revenues are from UK sales.

The Future Fund is being delivered by the British Business Bank and will remain open until September.

A Convertible Loan Agreement has been created for those who intend to apply, which can be found here. Further details of this loan scheme and how to apply can be found on the British Business Bank website.

Applying for finance? – Check the loan agreement beforehand

Thousands of businesses are likely to apply for finance as they attempt to deal with cash flow issues related to the coronavirus pandemic, including via the Government-backed Coronavirus Business Loan Scheme (CBILS), Large Business Loan Scheme (CLBILS) and COVID-19 Corporate Financing Facility (CFF).

These loans, although backed by the Government, are not without risk and businesses will remain 100 per cent liable for the finance they take out.

The commercial terms on these loans are likely to differ drastically as they are being provided by different accredited lenders via the British Business Bank.

As a result, the loan agreements that you are required to agree to may vary depending on the requirements of each lender and your financial position.

Loan agreements will typically include the following points, which should be carefully reviewed:


Conditions Precedent –
conditions a lender needs to be met by a borrower before agreeing to release the funds.

Interest – the agreement should clearly set out whether interest is payable on the loan being made and if so, at what rate. 

Repayment – the loan agreement should set out how the loan is to be repaid and whether additional voluntary payments can be made to settle the debt early. Be careful as early repayment could result in additional fees being charged.

Indemnities – lenders may require indemnities that promise to pay to the lender on a pound-for-pound basis on a particular type of loss arising, such as in the event of a default on the loan.

Representations or warranties – lenders may use representations and warranties to limit their lending risk.

Financial covenants – in a commercial loan these define the parameters within which a borrower may operate its business and can include:

  • How a lender monitors a borrower’s financial position during the loan;
  • Early warning requirements of financial difficulty; and/or
  • Means to enforce financial discipline.

Default Events – the agreement should specify under what circumstances would give a lender the right to demand early payment. These should be tailored and negotiated as appropriate and in light of the current crisis.

Securities – lenders may ask for security against the loan they are making, this is usually an asset that can be sold to recover debts. The Government has already stepped in to prevent the requirement for personal guarantees for loans of £250,000 or less, but it is important to check whether any securities are listed.

Loan agreements can be complex and very onerous, and so it is important that they are checked thoroughly beforehand by a legal professional to ensure you aren’t obligating yourself to a condition you aren’t comfortable with or cannot meet in future. Speak to our team to find out how we can help.

Coronavirus and the duties of businesses and directors

Although the day-to-day workings of most businesses and their directors have changed, their obligations and duties remain the same.

The Government is doing its best to clarify many of the uncertainties around the regular statutory duties and responsibilities of a company and its directors, but there are still many more questions that businesses have.

To offer some clarity in a world of confusion, we have looked at a number of key points and considered the latest advice. 

Directors 

Directors normally have certain obligations to a company and its shareholders that they must fulfil. However, in difficult times such as these, where financial distress is more likely, directors must also consider their responsibility to creditors.

This can create an extremely difficult balancing act, between ensuring a business remains functional and survives and not making things worse for existing creditors by creating new debt.

The Government has already stepped in to help directors stuck in this position by softening insolvency rules around liabilities for wrongful trading to ensure directors won’t be penalised personally if they place the needs of the business before creditors to ensure people remain in work and a business can continue to operate. 

Nevertheless, where a business starts heading towards insolvency, there should be a change of emphasis to consider what the consequences of a company’s actions would be on its creditors.

Non-Executive Directors 

Non-executive directors cannot take a passive role if their company faces collapse. Although they may take a less active role all directors on a company’s board have both collective and individual responsibility for ensuring they are aware of the company’s affairs so that they can fulfil their duties. 

This is a point that has been tested in the Court of Appeal, where non-executive directors have previously been held liable for the dishonest misapplication of company funds made by an active director, where they were unaware of how the company was functioning and failed to act to report illegal activity.

It is important that during these difficult times, non-executive directors take a more active role in a business and keep abreast of all changes so that they are properly informed and can report concerns to auditors and other directors.

Dividends 

Several major banking institutions have already announced that in the current climate they will not be paying dividends to shareholders.

This sector is not alone in considering whether the payment of dividends is appropriate and viable considering the difficulties that many businesses face. 

Where a dividend payment has already been announced, a board will rarely adjust its intentions due to the negative impact on investor relations and the potential for causing upset in the market. 

However, businesses should also consider the ‘court of popular public opinion’ and the survivability of a company, which may lead them to cancel previously announced dividends.

Whether a board is able to do this with relative ease will depend on the type of dividend agreed upon. An interim dividend is decided on and announced by directors, which only becomes a binding obligation to shareholders once it is actually paid.

Alternatively, a final dividend is one which is recommended by directors to shareholders that is approved by shareholders via an ordinary resolution and which is binding at the point of approval. 

This latter classification of dividend may be more difficult to cancel and could be more likely to lead to action through the courts or other legal disputes, which is something businesses should be aware of.

AGM

Listed companies and organisations ran via a trust are often required to hold an AGM. Already many directors and trustees have raised concerns about the public health risk of holding such a meeting given the Government’s own ‘Stay at Home’ advice.

Most company articles will provide that only shareholders that are “present” can count towards quorum or can vote. To be “present” is often stipulated to mean that the person(s) have to be in a single location where the AGM is held. 

Many companies are already exploring the use of technology in light of the current limitations and seeing whether the use of video and audio conference technology could be used to hold an AGM, without the need for shareholders to be present.

It should not instantly be assumed that a company’s articles will allow this and shareholders should discuss whether they will allow a meeting to be held this way and amend existing articles. It is not always straightforward to amend a company’s articles in this way and so other options should be considered. 

The Chartered Governance Institute (ICSA) has issued guidance along these lines that suggests a minimum number of shareholders could be present at the specified location to meet the criteria, as long as they follow social distancing rules, with an allowance for other shareholders to join the meeting using technology, thus meeting the requirements for quorum and voting found in many company articles. 

Such a meeting should merely address the formal business and close. ICSA believes this would constitute “essential work” that could not be undertaken from home.

The Government is also to issue guidance shortly regarding the holding of AGMs in compliance with lockdown restrictions, which may temporarily permit online AGMs or postponing such meetings.

The Coronavirus Large Business Interruption Loan Scheme (CLBILS)

The Government has announced a further scheme to support businesses through the Coronavirus crisis.

The Coronavirus Large Business Interruption Loan Scheme (CLBILS) is aimed at large businesses with annual turnovers of between £45 million and £500 million.

These businesses cannot access facilities through the Coronavirus Business Interruption Loan Scheme (CBILS), which is limited to companies with a turnover below £45 million, or the Bank of England’s COVID Corporate Financing Facility (CCFF), aimed at the very largest businesses.

Like CBILS, a Government guarantee of 80 per cent will be provided to enable banks to lend in circumstances where they might not otherwise be able to.

Unlike CBILS, which only provides loans of up to £5 million, CLBILS will provide loans of up to £25 million.

However, while CBILS provides loans that are interest-free for 12 months, CLBILS loans will be provided at normal commercial rates of interest.

Further details of how to access the scheme will be announced by the Treasury later in April.

It is strongly advised that you take independent legal advice when taking on a loan, particularly where a personal guarantee is requested.

Companies House announces an extension for late filing of accounts

In the light of the current COVID-19 pandemic, and companies focusing their time on trying to keep their business afloat, Companies House has announced that businesses will be able to apply for a 3-month extension for filing their accounts.

Generally speaking, if a company is late in filing their accounts, Companies House will automatically issue a penalty notice and the later the accounts are filed after the deadline, the higher the amount of the penalty. Once issued, a late filing penalty can be appealed against. However an appeal will only be successful in very limited circumstances and companies wishing to appeal must:

  • give a specific reason for not filing their accounts on time
  • include all relevant details, such as dates and times
  • prove the circumstances were out of the company’s control, for example a fire destroyed their records a few days before their accounts were due

This joint initiative between the Government and Companies House will mean businesses can prioritise managing the impact of COVID-19.

It is very important to note that companies will still however, have to apply for this extension as it does not come into effect automatically for all companies. Failing to apply in time means companies risk having their name struck off the register.

How long does it take for before a company is struck off for non-filing of accounts?

The procedure and timing of this is set out in section 1000 of the Companies Act 2006. This requires the Companies Registrar to send at least two formal letters to the company in default, and if no reply is received to either letter, publish a notice in the Gazette to inform the world at large that the company will be struck off two months after the date of that notice. The process usually takes around four months. A company has 14 days to respond to the first letter, failing which, the Registrar will, within 14 days send the second letter. 14 days after sending the second letter, the Registrar will in the absence of receiving a reply, publish a notice in the Gazette, two months after which, the Registrar can strike off the company.

How likely is a company to get an extension?

Companies House say that any company applying for an extension citing issues around COVID-19 will be automatically and immediately be granted an extension. Companies can apply through a fast-tracked online system which is stated to take just 15 minutes to complete.