”Skinny services deal to go please”
Perspectives / Brexit and delivering services
5 considerations for your morning coffee
As the muted New Year celebrations in Europe fade and UK based executives start back at work (albeit most likely from their spare room or dining room table), they will most likely have an action near the top of their to-do list to update their understanding of the impact on their business of the EU/UK Trade Agreement that was signed whilst they took a break.
As we are sure most of you will have read, the document in fact does very little for UK service-focused companies, and whilst there are promises in some sectors to do more over the course of the next year, there is little doubt that the trading landscape has now changed significantly.
To help accelerate the analysis phase, and to ensure our technology partners are on the front foot, we have prepared a short set of recommendations that will help service-focused companies to set priorities over the next few weeks.
The UK/EU Trade Agreement contained little on Services and the outcome will result in a number of changes for UK service focused businesses when dealing with EU based clients
1. Establish (if not already in place) a Brexit response team
The group of senior executives need to be able to take decisions on the core aspects of your business, from the client, relationship to the provision of resources, to the legal, data and technology aspects. We recommend a daily ‘’morning prayers’’ type meeting, with an agenda supported by a set of actions. Priority should be given to specific items such as the impact on the client relationship, understanding what can and cannot be delivered (and from which location, in the case of delivering remote services) and the impact on the existing contracts and their profitability. We recommend that this group remains in place for the month of January as a minimum, or at least until the management team feel comfortable that all of the key issues have been tackled and understood.
2. Put aside some budget and fund this properly
Whilst some service providers have already invested a lot of time and effort in trying to understand the impact of Brexit on their business, it was not that easy to do without knowing the content of the agreement. With an agreement now on the table, you should be engaging with your legal and tax advisors to understand what the implications are going forward. We suggest focusing on:
- The ability to be able to service clients remotely and the implications of doing so. The agreement is quite clear that servicing clients in an EU country, post sale, is not going to be an easy option with visas being required. However, a lot of the technology and digital suppliers sell and then service remotely (mode 1). It will be key to understand what is still possible and what the legal, tax, vat and other implications are of such an operating model, as the trend will most definitely be to shift away from delivering in-country (mode 4) to delivering remotely (mode 1).
- The potential impact of the delayed data agreement with the EU. The agreement allows for a temporary agreement on the use and sharing of personal data, but this agreement will only be in place for the next six months (at a maximum). As such if data is being held outside the EU, then plans need to be put in place as soon as possible to look at options for moving key personal data inside the EU.
3. Call the client and arrange a meeting to discuss the implications. We recommend doing this as soon as possible, and no later than the first week of January 2021. The sooner you can come to a mutual understanding of the impact on the pre-Brexit servicing model the quicker you will be able to mitigate the impacts.
We recommend discussing:
- The pre-Brexit delivery model and the expected impact
- Teams already in place in the EU, visas and the right to work and the ability to be able to continue to offer services, should there be a requirement to continue to deliver in-country.
- Note: We expect clients to be undertaking a review of the external staff now being offered by UK companies into EU based clients, and the mode of delivery.
- Implications of delivering services remotely, from the UK into the EU. What is possible and what is not and how easily can it be done (i.e. is the infrastructure in place to support such a model). One of the plus sides of COVID is that a lot of business has already shifted to a remote model over the past 12 months.
- Changes in tax, especially paying and claiming VAT (new registrations may be required). For B2B activities most of the changes are minimal.
- Local supplier alternatives and solutions.
- Any mutual recognition of qualifications challenges. You can check impacted professions and requirements in the EU database here. Can your people still work in the clients location?
Most likely there will be a need for a series of meetings, and we suggest that these are also held daily so as to obtain as clear a picture as possible on a new shared delivery model.
4. Review all of the findings and collate a ‘’business case’’ view of your existing contracts and those in the deal pipeline
The expectation is that the future arrangements will be less profitable and more complex to maintain for UK service companies and EU based clients. It will be key to quickly understand and digest the findings from the daily meetings and to overlay them onto the existing business model. Triage existing business contracts and the deal pipeline to identify business at risk and prioritise accordingly so as to achieve a clear understanding of the new ”playing field”. In some cases, it may be necessary to walk away from deals.
Understanding if it still makes sense to try to offer services remotely (if possible), or if it makes more sense to partner with local suppliers who can provide locally-based resources, could have a real impact on the bottom line.
5. Understand the legal and regulatory aspects, and ensure procedures are in place to adhere to them
Due to the limited time to prepare for the change in rules, we expect differing responses as people grapple with the new rules and, in the absence of any clarity, continue ‘‘as was’’. Whilst there may be a temptation for companies to pursue the same model as before, thinking this may work in the short-term, UK companies should not take such an approach lightly and assuming staff can now enter the EU and work, as before, is not a strategy that we would recommend.
The UK will now be treated as a third country and taking the Netherlands, as an example, extensive legislation (Aliens Employment Act, Wav, 2005) already exists that imposes heavy fines of up to €12,000 per employee, as well as extensive bans for ignoring or abusing the rules. You can read more about the amount that can be imposed both on the supplier/employer and the client here. Fines do vary across the EU and in some cases can be as high as €50,000 per employee (Austria).
Employment Chain Law Applies (Netherlands)
”In the case of the rules being ignored, each party in the chain of employment is liable and will receive a fine. This means that there can be multiple fines for one single illegal employee. Regardless of how far up the chain even if they are unaware of the employment of an illegal the principle employer can receive a fine.”
