A heightened tariff regime is already introducing volatility into global supply chains, disrupting pricing structures, and has triggered retaliatory tariffs from several nations that will affect UK exporters and multinationals operating internationally.
For British companies with exposure to US markets, or those reliant on globally integrated supply chains, this 90-day period presents a critical opportunity to develop a strategic plan.
Contents
What do tariffs mean for UK businesses?
Understanding the tax impact
Impact of tariffs on M&A
Scenario modelling
Pricing and consumer sentiment
Supply chain shifts
Tariffs have the potential to create both opportunity and risk for UK companies. UK firms selling to US consumers are faced with the question of whether they can pass-on the tariffs that they are confronted with to consumers. The extent to which they can do this will depend on the likely response of consumers. Most importantly, would they divert purchases to competitors?
Tariffs on UK goods do not exist in a vacuum. Other countries, China in particular, have been hit with more significant tariffs. The implication of this could be that UK goods become relatively cheaper. Similarly, China has also imposed significant reciprocal tariffs on the US, which may force substitution away from US imports to those of other countries and domestic production.
As well as diverting trade flows creating winners and losers, tariffs also have the potential to shrink the global economy. Tariffs are distortionary and create costs which must be borne. Macroeconomic models such as that developed by the Tax Foundation estimate that a 10% universal tariff would reduce US GDP by 0.4 percent in the long run and hours worked by 400,000 full-time equivalent jobs.
Even though much of the proposed tariff regime has been paused, the impact will still be keenly felt through the uncertainty that has been engendered in the global economy. The spectre of tariffs looms large for firms that are making long-term strategic investment decisions. The direct impact of tariffs coupled with the impact of uncertainty have the potential to lead to a recessionary environment.
Ultimately, tariffs prevent countries from specialising in what they produce most efficiently, making overall production less optimal. By shrinking or fragmenting markets, they undermine economies of scale and reduce productivity, and, by disrupting trading relationships, they can inhibit the flow of technologies, ideas, and knowledge across borders – not just goods – to the detriment of innovation and long-term economic growth.
If the 10% tariffs remain on the UK after the 90-day pause, the increased cost of moving goods and possible retaliatory action on all sides could drastically change business strategy, supply chain and profit margins.
With the pause in place, it’s an important time for businesses to reassess their international tax planning, evaluate supply chain tax efficiency, and consider compliance requirements in anticipation of a more protectionist trade environment.
If tariffs remain at 10% on UK exports after 90 days, businesses could face increased customs duties and indirect tax burdens. Mitigation strategies will need to be considered to reduce the impact of the additional tariffs, which will focus on the three pillars of customs compliance.
As the tariffs are country specific, despite a universal rate currently being applied to all but Chinese imports, the origin of products is fundamental in determining the financial impact. Consideration should be given as to whether changes to supply chains and processes can be used to alter the origin of a product and thereby qualify for a lower tariff rate. It is important to remember that origin refers to where a product last underwent ‘sufficient transformation’, not where it was shipped from. A number of tests are used to determine the origin.
The customs value of goods is the second pillar and is a further opportunity to mitigate the impact of the tariffs. The nature of transactions within supply chains should be reviewed and checks made to ensure that efficient but compliant values are being declared. This may be particularly relevant for international connected party transactions and those who may be able to renegotiate shipping terms.
The final pillar is classification and has come into focus as the USA has not applied the tariffs to all products. There is a list of several hundred commodity codes to which the tariffs do not apply. It is important to check whether your goods are on the list and be confident that the commodity code you have assigned to the goods is correct.
It is imperative for businesses to consider the wider impact that a tariff-based trade war between the US and the wider global economy could have. An increased tariff environment puts a squeeze on profit margins in relation to goods crossing borders. It may mean that certain imports are simply untenable for businesses. The resultant changes to supply chains impact all areas of tax – from transfer pricing strategy, to import VAT profile.
Any business change has a tax impact, and during this time of uncertainty and possible bold and fast decisions relating to global supply chains, Tax Directors must stay close to decision making to ensure that tax is at the table.
A checklist for businesses to consider:
Investors and corporates alike have been well accustomed to living in a volatile world, particularly since the COVID-19 pandemic. There is a level of resilience and entrepreneurship in businesses that ensures that growth will be achieved in spite of the market – not because of it.
As the world gradually steps back from the globalisation that has dominated for the last 30 years, we expect to see a resurgence in domestic M&A. Businesses will look for greater self-reliance, shifting away from dependence on global markets to drive growth. At the same time, we can expect larger corporates to pursue in-country portfolio diversification - spreading risk across geographies, while insulating themselves from domestic policy shifts.
There will be sectors – including healthcare, business services and technology – that are likely to enjoy a valuation boost because of this shift, while manufacturing, logistics and consumer-led businesses that are more reliant on importing raw materials will take longer to adapt to the ‘new normal’.
From a deals perspective, the tariff landscape presents a number of challenges for UK-based businesses in the M&A market. Due diligence should now focus on evaluating the target’s current or potential exposure to tariffs, supply chain resilience, and the ability to manage cost increases. Buyers and sellers may need to be creative with deal structures to help mitigate these challenges, and this could include earn-out structures based on how effectively the target is able to navigate them. For manufacturing targets, reshoring plans, and supplier diversification are key considerations.
Assessing the target’s ability to adjust pricing to offset tariff-driven costs is also critical. Tariff-related clauses may be included in sale & purchase agreements, and delays in deal timelines could trigger adjustments based on new tariff impositions or inventory value changes.
Post-acquisition, businesses should look for synergies in supply chain optimisation to reduce tariff exposure. While tariff uncertainty may delay some deals, opportunities may arise in distressed sectors or through vertical integration, as well as in forming alliances with suppliers in tariff-friendly regions.
In these continually shifting times, our focus remains on helping clients understand what change means for them, and how they can move forward with confidence.
By modelling a range of tariff scenarios, businesses can better understand the impact of various outcomes - whether tariffs on the UK are fully removed, reduced, or escalate into more disruptive shifts after the 90-day pause. This analysis is crucial for pinpointing potential effects on cash flow, profit margins, and financial covenants, which in turn enables management to ensure the financial stability of the business. Having multiple scenarios modelled can help with making best informed decisions faster – which will be key given the pace of change we are observing.
This proactive approach will not only safeguard profitability but also uncover any potential opportunities - such as cost savings from near shoring or forming alternative supplier partnerships, or expansion into new markets.
A robust modelling process to quantify the potential impact of tariff and supply chain changes is essential to protect your business and capitalise on potential opportunities in the face of tariff uncertainty. This forward-thinking approach will allow businesses to remain resilient, whether tariffs are reinstated, modified, or removed.
A checklist for businesses:
While businesses will need to focus on improving internal efficiency and streamlining operations to avoid price hikes, continuing to operate in certain markets impacted by tariffs without adjusting prices could become untenable.
Businesses should consider the elasticity of their customers’ demand. Where possible – through methods such as modelling, market testing and polling – businesses can assess the viability of targeted price increases for specific products or customer segments. That can inform what action can be taken in areas where margins are most affected.
Where this is necessary, it’s vital businesses have a clear communication strategy to explain these price adjustments - transparency about the reasons for price hikes will be key to maintaining trust. Getting on the front foot with the messaging and being clear on who will be responsible for communicating what to whom (internally and externally) will ensure that organisations can move at pace without dropping the ball.
A checklist for businesses to consider:
UK-based businesses will need to proactively work with suppliers to identify and manage tariff-related pressures, including price hikes and delivery slowdowns.
Assessing the most tariff-exposed parts of the supply chain, diversifying sourcing across multiple regions, and exploring near-shoring options will be key to reducing long-term vulnerability.
Where stock levels are a concern, prioritising critical goods and inputs at risk of disruption will be important for ensuring operational resiliency. Alongside this, robust contingency planning and consistent engagement with supply chain partners will support early risk detection and an agile response to changing conditions.
By optimising inventory levels and ensuring flexibility in your supply chain, businesses will be better positioned to navigate future disruptions and manage cash flow efficiently.
Don't lose sight of sustainability factors
Tariff-related changes in the supply chain may require businesses to start discussions with new suppliers to gather emissions data and other relevant sustainability information. This could delay the tracking of carbon impacts across value chains – however, it could also present an opportunity to accelerate the process, by incorporating emissions reporting requirements into new supplier contracts.
Additional costs will soon arise in the supply chain as jurisdictions implement new carbon pricing regulations, such as the EU’s Carbon Border Adjustment Mechanism (CBAM) from 2026 and the UK CBAM from 1 January 2027. Businesses will also need to consider how these targeted carbon-related costs could compound or potentially offset when making sourcing decisions, while continuing to take into account the businesses long-term sustainability strategies.
A checklist for businesses:
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