March 15, 2019 – Rolf Schmidt, Managing Partner, Global Practice Director Enterprise Management
Are your systems and processes prepared for Brexit?
Even if there is still a lot of uncertainty, the decision by the UK to leave the European Union will have a big impact on business within the UK itself and across all EU countries. Although, depending on the political solution, Britain’s membership of the Customs Union and the Internal Market can initially remain. After the transitional phase, the United Kingdom will become a “third country”. Many business processes will be affected by Brexit, such as invoicing, taxes, global trade or legal reporting and there will be an impact on your SAP system too.
Business and IT must be prepared in advance for possible adjustments and changes in order to act quickly and effectively depending on the Brexit scenario. Our Westernacher experts will assist you in the analysis, evaluation and preparation of the necessary steps, as well as in their implementation in your SAP system.
There are already areas where some action is required and business and IT can prepare the necessary steps in the SAP systems technically. The SAP system will have to be configured and tested to support the new organizational structures and the changes in the existing organizational elements.
It will be necessary to set up a project to cope with all the necessary and expected changes. The main areas in business and IT should be prepared for the following:
If the UK is no longer a member of the EU, it will become necessary to adapt the organizational structure of your company in SAP, depending on strategic business decisions to optimize the legal structure of the organization. Technically, this can have an impact on Company Codes, Controlling Areas, Operating Concern and other organizational objects. Existing company codes for UK companies have to be adapted, as they will not belong to the EU anymore.
Any company code that is created in the SAP system with country ‘GB’ is no longer a company code within the European Union. Any plant, 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. Also, 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 also amended accordingly. A comprehensive review of the tax procedures and determination will be required:
1. Tax reporting
All forms and reports for invoices, tax declaration, INTRATSTAT etc. have to be reviewed and possibly adapted in order to be compliant with the new situation.
2. 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 configuration of condition records.
- Intra-EU business will change and the tax codes for EU business in TAXGB have to 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 has to be excluded from tax and sales reporting.
- Tax regulations to other non-EU countries needs 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 needs 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, in the case of Brexit, companies must comply with many trade and import and export declarations and filing from and to the United Kingdom.
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.
Based on the latest developments and together with your business and IT, our Westernacher experts analyze your systems, develop an action plan and implement all necessary solutions in time. Keep in mind that very fast reactions may be necessary.
Contact us now to arrange your individual appointment to prepare your roadmap in readiness for Brexit.