As we head towards the end of 2020 not only are global markets contending with the economic impact of the pandemic, but international relationships remain up in the air as the UK and the European Union (EU) continue to negotiate a Brexit trade deal.
With the transition period of Britain’s exit from the EU set to end on 31 December, there is now a growing sense of urgency in concluding a deal in time. The European Union is considering allowing any trade agreement with the UK to be ratified after the event, and officials have put forward proposals for an agreement to be provisionally implemented at the end of 2020 before being given formal approval later by the European Parliament. Yet until a deal is done, the fog of uncertainty that has hampered the private sector’s ability to plan effectively for life after Brexit remains.
In order to mitigate risks and avoid any business disruption, we have been helping our clients to map the impact of Brexit on their SAP system, identifying the actions which needed to be taken and working with them to develop a solid ERP action plan. Our G3G Brexit Workshops have been designed to assist in the analysis, evaluation, and preparation of the necessary steps, as well as in their implementation.
Feedback from our G3G Brexit Workshops has been invaluable in helping us refine and tailor solutions to help organisations cope with all the necessary and expected changes. Business functions and IT teams should be prepared for changes to the following:
With the UK no longer a member of the EU, it has become necessary to adapt the organisational structure of your company in SAP, depending on strategic business decisions to optimise the legal structure of the organisation. Technically, this can have an impact on Company Codes, Controlling Areas, Operating Concern, and other organisational objects. Existing company codes for UK companies must be adapted, as they will not belong to the EU anymore.
Additionally, if the organisation uses functionality such as Plants Abroad, then the handling of any such plants will need to be changed, as they will be treated in the same way as any other foreign plants – which may, in turn, necessitate the creation of additional foreign legal entities to which these plants will belong, together with all the associated company dependent master data.
Any company code that is created in the SAP system with country ‘GB’ is no longer a company code within the European Union. Any site, business partner, customer, vendor, bank, etc., that is located in the United Kingdom is no longer part of the EU either. This will require updates in master data fields, tax master data, account groups, balance sheet reconciliation accounts, material master, and configuration. Plants abroad have to be adapted, and open sales or purchase orders can be affected.
After Brexit, the UK no longer needs to comply with the common EU VAT Directive and could design its own VAT system. These changes, as well as the distinction between the EU and the third country, are reflected in the practical implementation: tax identification and tax codes have to be adjusted and the turnover in the VAT declarations must be differentiated.
As part of such reports and the general settlement of trade with Great Britain after Brexit, all forms that were created to complete these processes must be examined and amended accordingly.
A comprehensive review of the tax procedures and determination will be required:
All forms and reports for invoices, tax declaration, Intrastat, etc. must be reviewed and possibly adapted in order to be compliant with the new situation.
Tax Determination – the biggest field of action will be the tax determination procedures in SAP, which will be affected by different changes:
- The tax procedure TAXGB for the UK has to be reviewed and adapted on decisions by the UK government and their impact on VAT calculations, especially for former EU but also other foreign business. Even if these decisions are still not clear, business and IT should be prepared for reacting at short notice.
- The tax determination procedure MWST requires corresponding updates in the configuration of condition records.
- Intra-EU business will change and the tax codes for EU business in TAXGB must be disabled.
- Instead of the Intrastat declaration and the EU Sales list dealing with intra-Community trade in goods, the Extrastat declaration should be drawn up. Also, deliveries to the UK and services to UK-based companies are no longer to be declared in the Tax and Sales summary report. In company codes of other EU member states, business to the UK must be excluded from tax and sales reporting.
- Tax regulations to other non-EU countries need to be revised depending on outstanding decisions and interstate treaties.
- Texts on output related to VAT exemptions will have to be reviewed and updated.
All automated intercompany processes in SAP between UK and EU companies need to be revised too, including the tax determination configuration.
Global Trade, Customs and Duties
All goods and services between the European Union and UK companies will be subject to import or export customs duties. Goods and services from the UK are also subject to import sales tax. Therefore, post-Brexit, companies must comply with many trade and import and export declarations and filing from and to the UK.
All cross-border deliveries into the UK or from the UK to the EU will no longer be intra-community supplies but export deliveries. The consequence will be technical adjustments and other documentary evidence declarations and import/export declarations and customs. Although it is still unclear, new or changed custom duties and charges will be levied and there will be an impact on foreign trade solutions in SAP and GTS configuration and master data. Business from the UK to EU member states will be considered as an export and will have to be reported to customs accordingly.
Keep in mind that very fast reactions may be necessary. Based on the latest developments and together with your functional and IT teams, our G3G experts can analyse your systems, develop an action plan and implement all necessary solutions to help mitigate any risk of disruption to your business.
Contact us now to arrange your bespoke workshop to deliver your Brexit-ready roadmap.
Stacey White, Managing Director, UK
I joined G3G to help grow and develop our ERP practice and spent several years helping clients seamlessly translate strategic visions into deliverable roadmaps, before moving into my current role as UK Managing Director. I have spent almost 20 years in the IT industry implementing a variety of software solutions worldwide across multiple verticals.