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Published on Friday, July 12, 2019

Brexit: how to prepare for No Deal

Are you ready for a No Deal Brexit? Well, you need to be, says Nick Parkinson, solicitor at Travlaw LLP, who shares his expert advice.

"We are leaving on 31/10/19. Come What May. Do Or Die! Brexit has ground to a halt. The political wrangling over whether to have a soft, hard or liquid Brexit has been subsumed by the ongoing Tory Leadership Contest in which Boris Johnson is widely tipped to be our next Prime Minister.

With Boris' recent pledge to leave the EU 'with or without a deal', and that coming from an ardent Leave Campaigner, is it time for travel companies to brace themselves for the stark reality of the UK leaving the EU on October 31 without a deal? Or is it just a case of 'fake deadlines' and 'fake promises'? Either way, it seems like an opportune time to remind ourselves of some of the implications that a No Deal Brexit could have on the travel industry.

No significant disruption is expected in the immediate aftermath of leaving the EU without a deal given that the UK and EU have in place an agreement for 'basic connectivity' for flights between the UK and EU countries for 12 months. There are some limitations to what this covers and, of course, a long term agreement will need to be negotiated but, overall, there is general feeling of confidence that this will not be overly problematic. It is of course mutually beneficial for the UK and the EU to ensure that flights continue to operate smoothly. In the meantime, it is advisable to monitor updates from the EU Commission, EU Parliament and Council and the DFT on any aviation issues.

Package tour operators, and travel companies dealing as 'principal' rather than as agent, in particular may be concerned that they could be held liable should flights not operate as planned after Brexit. For that reason the best advice is to review what insurance policies are in place. Public liability insurance is well advised in any event, and consideration should also be given to obtaining 'supplier failure insurance' for those concerned that the financial impact of a No Deal Brexit could potentially force any airlines that they deal with in to insolvency.

Providing services in EU countries
Are you offering travel services to customers in other EU countries? The good news is that under WTO Rules there should not be any impact on your ability to do so. This is because the EU have provided a commitment to all other WTO Member countries that there are no restrictions on travel agencies and tour operators (including tour managers) supplying their services in to the EU. Whether, in practice, any EU countries may attempt to breach that commitment, however, remains to be see. If they were to do so, the mechanism to resolve such disputes would involve the UK government taking legal action on behalf of the travel industry - which could take 1-3 years to resolve.

For anyone supplying a substantial part of their services in to other EU countries it may be worthwhile liaising with the local authorities and regulators in that country for assurances of their intentions post-Brexit.

Establishing a permanent business presence in another EU country
Again, under WTO Rules this should be straight forward in principle, but there are specific restrictions in place for Belgium, Portugal and Italy to be aware of.

Free movement of workers
Uncertainty awaits. EU countries will have a free hand to say who can and cannot come over, on what terms and for how long.

Financial impact on you and your suppliers
A volatile currency exchange rate is but one issue. The 2016 Referendum caused a reaction to currency markets with the pound falling sharply against the Euro and the US dollar. That may explain why concerns over exchange rates ranked top of the list in response to an August 2018 survey of members of the Association of Bonded Travel Organisers Trust (ABTOT). The concerns are not without merit, with a recent report suggesting that the pound could fall in parity with the Euro if Boris follows through with his 'Brexit threat' to leave the EU without a deal. It may be worth checking with your accountant or an independent financial advisor to find out if there are any solutions to minimise the impact (e.g. 'hedging your bets').

With the financial impact on travel companies going well beyond currency exchange rates, again consideration should be given, by tour operators and those contracting as 'principal', to 'public liability insurance' and 'supplier failure insurance'. This could offer important protections should problems materialise with any companies that are being relied upon on to supply their holiday services.

VAT - Tour Operators Margins Scheme
Will it be necessary for travel companies to register for VAT purposes in each Member State in which they are suppling services? Quite possibly, hence ABTA have advised their members to seek independent tax advice to consider the potential liabilities, process and timescales involved.

And that's only scratching the surface
The implications of a No Deal Brexit on the travel industry are far reaching and go way beyond the issues that we are only able to touch upon briefly in this article. If you have any pressing concerns feel free to contact the author at [email protected]

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